A Beginner's Guide to Business Valuation. Lesson Learned from 20 Years in the Trenches

A Beginner’s Guide to Business Valuation

Lessons Learned from 20 Years in the Trenches

Photo of Jacob Orosz

by Jacob Orosz (President of Morgan & Westfield)

Questions Answered in This Book

  • How do valuation approaches differ for small and mid-sized businesses, and between private and public companies?
  • What are the top ten crucial concepts in business valuation?
  • Why does the range of values vary widely for businesses?
  • How do you normalize financial statements for SDE or EBITDA calculation?
  • In business valuation, when to choose between SDE and EBITDA?
  • What are the common valuation methods?
  • Who are the four types of buyers, their goals, and how to position your business for each?
  • How does a company's motive for acquiring your business affect the sale price?
  • What are over 50 factors impacting the value of a business?
  • How does transaction structure influence net proceeds?
  • What guidance is available to avoid high markups on professional business appraisals?

Overview

A Beginner’s Guide to Business Valuation walks you step by step through valuing a business with $1 million to $50 million in revenue. You’ll learn the fundamental factors that determine the value of any small to mid-sized business and simple methods for maximizing value when it comes time to sell. This practical guide is based on what the author has gleaned from 20 years in the trenches selling businesses. It’s written for the layman, specifically meant to address the real-world methods buyers use to value businesses.

This one-stop compendium explains the most common valuation concepts and offers sound advice for anyone looking to sell a small to mid-sized company. A Beginner’s Guide to Business Valuation is a conversational field manual that simplifies a technical and complex area of practice with real-world stories. It explains valuation concepts in language any business owner can understand, without the jargon.

This comprehensive handbook is written by Jacob Orosz, one of the industry’s leading authorities on lower middle-market valuation, host of the M&A Talk podcast, and president of Morgan & Westfield, a nationwide M&A firm. Jacob has over 20 years of M&A experience and has valued and sold hundreds of businesses.

Table of Contents

Acknowledgments

    About the Author

      Preface

        Acronyms

          Additional Resources

            Introduction

            • Why Valuation Is a Range Concept
            • Main Street vs. Middle-Market Companies
            • Public vs. Private Businesses
            • A Note on Exceptions
            • A Note on Size

            Chapter 1: Eight Valuation Concepts

            • Concept 1: Fair Market Value vs. Strategic Value
            • Concept 2: Small Market vs. Middle Market
            • Concept 3: Business Valuation Is a Range Concept
            • Concept 4: Buyers Don’t Always Follow Valuations
            • Concept 5: Terms Affect Price
            • Concept 6: Personal Needs Affect Value
            • Concept 7: Comparable Sales Are Rarely Comparable
            • Concept 8: Fungibility Affects Value

            Chapter 2: Analyzing Financial Statements

            • Normalizing Financial Statements
            • Measuring Cash Flow
            • Which Measure of Cash Flow to Use

            Chapter 3: Business Valuation Methods

            • The Two Most Common Business Valuation Methods
            • Method 1 – Multiple of Earnings
            • ​​Method 2 – Comparable Sales Approach
            • What’s Included in the Price
            • Valuing Synergies
            • Valuing an Unprofitable Business
            • Multiples vs. Return on Investment

            Chapter 4: Obtaining an Appraisal

            • How Purpose Affects an Appraisal
            • What an Appraisal Measures
            • Timing the Appraisal
            • Types of Appraisals
            • The Standard of Value
            • The Type of Appraiser You Need
            • Choosing the Best Method
            • The Real Value of an Appraisal
            • Free Valuations
            • Average Price of a Valuation
            • The Valuation Process
            • Third-Party Appraisals

            Chapter 5: How Buyer Type Impacts Value

            • The Different Types of Buyers
            • Reasons for Acquisition

            Chapter 6: Factors That Can Affect Value

            • The Industry
            • Competition
            • Products and Services
            • Customers
            • Operations
            • Staff
            • Finance
            • Legal
            • Economic Factors
            • Negotiating Skills
            • Marketability
            • Timing

            Chapter 7: How Transaction Structure Impacts Value

            • Negotiating Transaction Structure
            • Negotiating the Term Sheet or Letter of Intent
            • Financial Aspects
            • Earnouts
            • Transition
            • Asset vs. Stock Sale and Taxes
            • Entity Type and Taxes
            • Allocation of Purchase Price and Taxes
            • Holdbacks
            • Sources of Financing the Transaction
            • Representations and Warranties
            • Partial Transactions

            Chapter 8: The Foundations of Maximizing Value

            • Building the Right Business for Your Buyer Type
            • Exploring Your Exit Options
            • Prioritizing Your Plan
            • Preparing Your Buyer List
            • Forming Your Deal Team
            • Maximizing Your Negotiating Position

            Chapter 9: The Mechanics of Maximizing Value

            • Business Model
            • Growth Plan
            • Financial Metrics
            • Financial Statements
            • Operations
            • Customers
            • Franchise
            • Legal
            • Staff
            • Ownership

            Conclusion

            • Additional Resources

            Glossary

              A Beginner’s Guide to Business Valuation

              Lessons Learned From 20 Years in the Trenches

              About the Author

              Photo of Jacob Orosz

              Jacob Orosz

              President and Founder of Morgan & Westfield

              20+ Years of M&A Experience: Over 20 years of experience facilitating mergers, acquisitions, sales, and other business transfers with transaction values up to $500 Million.

              300+ Transactions: Successfully participated in or managed the sale of over 300 privately held companies representing both buyers and sellers in North America, Central America, South America, Europe, and Asia.

              Author of 6 Books on M&A: The Art of the Exit, A Beginner’s Guide to Business Valuation, The Exit Strategy Handbook, Closing the Deal, Acquired and Food & Beverage M&A

              Host of M&A Talk: Host of the #1 podcast on mergers and acquisitions – M&A Talk.

              Host of Food & Beverage Talk: Host of the #1 podcast on mergers and acquisitions specializing in the food & beverage industry – Food & Beverage Talk.

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              Host of: The #1 Podcast on Mergers & Acquisitions
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              Browse Our Other Books

              Acquired. The Art of Selling a Business with $10 Million to $100 Million in RevenueThe Art of the Exit. The Complete Guide to Selling Your BusinessThe Exit Strategy Handbook. A Complete Guide to Preparing Your Business for SaleClosing the Deal. The Definitive Guide to Negotiating the Sale of Your BusinessFood and Beverage M&A. An Insider's Guide to Selling a Food or Beverage Business
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