By Jason Fraler, managing principal, Anchor Peabody, LLC
There is no doubt you can make a lot of money buying a business or selling the one you own. The flip side is also true: You can also lose a lot of money or leave a lot on the table. These thoughts also beg the question: How do you actually value a business?
There are many ways to perform a business valuation, some of which can be quite complicated (i.e. DCF, CAPM, WACC, etc.). Fear not. The most commonly used approach in our industry is an asset-based approach or a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) — whichever is greater. Since most of our earnings are depressed due to the current environment, an asset-based valuation is the more relevant approach at the moment, because most companies don’t have a lot of earnings to speak of.
Valuing a business is also not always about pure math. To illustrate the valuation methods and to show how two people can view the same business differently, Home Channel News and Parker Lumber have agreed to let Anchor Peabody review Parker’s existing Palm Springs, Calif., operation as a potential seller using actual historic and real-time financial data. Anchor Peabody acts as the adviser to the business and sheds light on some hidden value, which may be embedded in the business. Scott Parker, owner of Parker Lumber, also gives his views on how he would value the operation as a potential strategic acquirer, as if he were buying the business.
Click here for Anchor Peabody's view.
Click here for Parker Lumber's view.
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