Privately owned and operated florists are a major part of the retail industry. Classified under the SIC code 5992, there are around 35,650 such establishments in the US alone. The industry as a whole generates an impressive $6.6B in annual revenues and employs over 135,000 people.

Yet an average flower shop is a classical small business: producing around $200,000 in annual sales with a staff of 4.The industry is highly fragmented with the top 5 companies accounting for less than 2.5% of the total industry revenues.

Key value drivers for retail florists

The product for flower shops is arranged cut flowers that usually account for over 50% of a store’s revenues.  Florists with significant commercial accounts that tend to result in stable recurring revenues are valued above the average.

Another key value driver is an attractive store location with the rent expenses below 6% of the shop’s gross revenue. The highest valued flower shops are located away from the major “big box” competitors such as do-it-yourself home improvement or grocery chain stores.

The florists that focus on the special event and gift market segments tend to command higher business valuations. Essentially, such flower shops differentiate on superior service that leads to customer loyalty, higher profitability and, not surprisingly higher business value.

Sales from an online presence or phone orders tend to be more cost-effective ways to generate sales. Some of the most valuable flower shops achieve close to 80% of their revenues through these channels.

Business valuation methods for flower shops

Florists with a track record of highly stable, above average earnings are very desirable and sell often. If you study such business sale comparables, you can develop a very good idea of what your business is worth.

The typical tools to estimate your business value is to use the valuation multiples derived from such business sales. The multiples relate the actual flower shop selling prices to their financial performance.

Thus, you can calculate your business value in relation to its revenues, profits, EBIT, EBITDA, cash flow, assets or owners equity.

Here are the typical valuation multiples used to estimate the value of a flower shop:

• Business value based on gross revenue or net sales.
• Business value based on net income.
• Business value based on EBIT and EBITDA earnings.
• Business value based on the seller’s discretionary cash flow.
• Business value based on the furniture, fixtures and equipment assets.

Example: valuing a flower shop using valuation multiples

To demonstrate the idea, let’s pick a typical retail florist business with the following financials:

• Business gross revenue: $250,000.
• Business net sales: $225,000.
• Net income: $35,553.
• EBIT: $36,000.
• EBITDA: $39,500.
• Seller’s discretionary cash flow: $154,247.
• Furniture, fixtures and equipment assets: $25,307.
• Inventory: $4,601.

We pick a set of reasonable valuation multiples to calculate the value of the business as follows:

Other methods to use for valuing a florist business

You can value an established owner-operator run flower shop by the well-known Multiple of Discretionary Earnings method. This income-based business valuation technique lets you determine the value of the business based on its earnings outlook and a set of key financial and operational performance factors.

Since many privately owned florists are lifestyle businesses, the Multiple of Discretionary Earnings is particularly well suited for their business valuation.

For a florist that has created an solid reputation in its market, the value of business goodwill can be considerable. To appraise such a business, consider using the Capitalized Excess Earnings method, known as the Treasury Method. This technique is specifically intended to help you determine the value of business goodwill and total business value.

Classified under the SIC code 8011, the primary care physician practices are part of a large professional health practitioners service industry. In fact, there are over 373,000 medical practices in the US alone.

The industry as a whole generates some $202B in annual revenues, and employs over 3,000,000 professional and office staff. However, a typical medical practice is small business: producing around $600,000 in annual sales with an average staff of 8.

Medical practices tend to generate highly stable earnings due to the repeat business that arises out of an established and loyal patient base. As a result, established practices are a frequent acquisition target. Selling prices of similar physician practices offer you an excellent way to estimate the market value of your own practice or one you are interested in acquiring.

Market based practice valuation using multiples

In order to estimate the value of a medical practice, you can use a number of valuation multiples. Derived from recent sales of similar practices, the multiples relate the actual selling prices to the practice financial performance measures. The typical valuation multiples used in appraisals are:

• Selling price to net annual sales
• Price to gross profit
• Price to net income
• Price to EBIT and EBITDA
• Price to total practice assets
• Price to owners’ equity

It is a good idea to use a number of such valuation multiples for accurate business valuation. Each estimate may differ depending on how well your specific practice does compared to its peers. The result is a range of values, or some weighted average of all the practice value estimates together.

Example: using valuation multiples to value a primary care medical practice

Let’s consider a typical private medical practice with the following financials:

• Annual net sales: $600,000
• Gross profit: $585,000
• Net income: $80,000
• EBIT: $82,500
• EBITDA: $84,000
• Total practice assets valued at: $250,000
• Book value of owners’ equity: $11,000

For this example, we pick a set of reasonable valuation multiples and apply them to the financials. The practice value results are as follows:

Note the considerable variation in the results. That’s because our example medical practice compares less favorably with its peers when it comes to the owners’ equity measure and profitability.

Other business valuation methods to consider

To be defensible a medical practice appraisal usually relies on a number of business valuation methods. Since physician practices tend to create considerable business goodwill, the Capitalized Excess Earnings valuation method is a common choice.

Practice goodwill valuation: a common requirement in divorce cases

This is especially so in cases of marital dissolution in those jurisdictions that treat professional practice goodwill as part of the marital estate. You may have to split the goodwill into the personal and institutional parts depending upon the way the court in your jurisdiction handles the distribution of goodwill assets.

Direct capitalization techniques such as the Multiple of Discretionary Earnings valuation method are another common choice for valuing owner-operator managed physician practices. The method provides a very consistent way of calculating the practice value based on its earnings and a set of financial and operational performance factors.

Valuation using a Set of Standard Methods

If you own a land surveying firm or plan to acquire one, here are some interesting industry statistics. Classified under the SIC code 8713, there are some 12,900 such establishments in the US alone, employing over 78,000.

While the industry as a whole generates $4.6B in annual revenues, the average land surveying company is small business, employing a staff of 6 and making around $400,000 in annual gross revenues. In fact, 97% of surveying practices employ fewer than 24 staff!

Business valuation of surveying firms: Market Comps

Established, profitable land surveying practices are highly desirable acquisition targets. Hence, there is considerable market evidence of selling prices for such firms. You can use these Market Comps in order to develop a good idea of what your surveying company is worth.

Valuation multiples calculated from such comparable surverying firm sales lets you related your business financial performance to its potential selling price and, therefore, the company’s fair market value. Here is a list of valuation multiples that are typical in the industry:

• Price to gross revenues
• Price to net sales (less returns and discounts)
• Price to gross profit
• Price to net income
• Price to EBIT
• Price to EBITDA
• Price to seller’s discretionary cash flow (SDCF)
• Price to furniture, fixtures and equipment (FF&E) assets
• Price to total assets
• Price to book value of owners’ equity

You can develop a very comprehensive idea of what your surveying practice is worth by using this set of valuation multiples. See an example of how valuation multiples can be used to value your practice.

Example: using valuation multiples to appraise a surveying firm

To show how the Market Comps and valuation multiples can be used to value a surveying company, let’s pick a hypothetical firm with these financial parameters:

• Annual gross revenue: $500,000
• Net sales: $480,000
• Gross profit: $430,000
• Net income: $40,000
• EBIT: $45,000
• EBITDA: $47,000
• SDCF: $275,000
• FF&E assets: $175,000
• Owners’ equity: $50,000

We apply a set of reasonable valuation multiples and calculate the business value across all 9 financial performance factors. Here are the results:

Notice that the business value estimates based on the discretionary cash flow and assets are higher than the average. That’s because our example firm excels in its ability to generate positive cash flow and has a relatively high asset base.

If you own an established industrial equipment rental and leasing business, plan to buy one or need to provide a business appraisal for a client, consider adding the market-based valuation methods to your toolkit.

Classified under the SIC code 7377, profitable firms operating in a well defined, protected niche, are quite valuable and sell often. This means that there are plenty of business sale comparables you can use to estimate what your company is worth. Indeed, comparison to recent sales of similar businesses offers your the most convincing way to determine and prove the value of your own business.

Business valuation by the Comparative Transactions Method

This market-based technique is formally called the Comparative Transaction Valuation Method. The typical tools are a range of valuation multiples derived from past business sales.

These multiples relate the actual business selling prices to some measure of financial performance, including the equipment rental business gross revenues, net sales, gross profit, net income, EBIT and EBITDA, discretionary cash flow, assets and owners equity.

Once you know the valuation multiples for your business, you can calculate the fair market value of your firm by applying the multiples to your company’s financial performance parameters.

For example, if the median price to gross revenues multiple is 0.4 and your company’s current gross revenues are $4,000,000; then the estimated business value is $1,600,000. You can apply other multiples to refine and cross-check your estimate.

Example: market-based valuation of an equipment rental business

Let’s take a typical privately owned equipment rental and leasing firm with the following financials:

• Gross revenues: $4,000,000.
• Net sales: $3,750,000.
• Gross profit: $1,200,000.
• Net income: $50,000.
• EBIT: $80,000.
• Seller’s discretionary cash flow (SDCF): $270,000.
• Inventory: $620,000.
• Total assets: $1,500,000.
• Owners’ equity: $700,000.

For this example, we pick a set of reasonable valuation multiples as follows:

• 0.4 times the business gross revenues.
• 0.45 times the net sales.
• 1.25 times the gross profit.
• 25 times the net income.
• 17 times the EBIT earnings.
• 1.7 times the SDCF (SDE).
• 1.3 times the business total assets.
• 3.5 times the owners’ equity.

Applying these multiples to the company’s financials above, we get the following business valuation results:

A single number or a range of business values

Note that calculating the average is just one way to assess what your business is worth. You can also use the set of business valuation results to establish a range of values, from low to high. In this example, your company’s market value is likely to be between $1,079,000 and $2,450,00.

Using Market Comps for Business Valuation

If you own a small animal veterinary practice, consider buying one or plan to open a new clinic, here are some interesting industry statistics.

Classified under the SIC 0742 code, there are over 37,000 vet practices in the US alone. The industry as a whole generates some $12.2B in annual revenues and employs more than 264,000 people. The average vet clinic is quite small - generating around $300,000 in annual sales with 7 professional and support staff.

Key value drivers for a veterinary practice

While each vet practice is unique, a number of common factors contribute to the practice value. Here is the short list:

• Practice size. Multi-doctor vet practices tend to be more valuable than a single practitioner clinic.
• Location. Practices located in urban areas usually command higher valuations.
• Specialty area. Small animal veterinary clinics are generally more marketable than large animal practices. As a result, small animal vet practice valuations are typically higher.
• Asset base. Most vet practices sales are asset sales. A clinic with significant furniture, fixtures and equipment assets is likely to command a higher valuation.
• Market position. Well-established clinics can create considerable business goodwill. These practices tend to be above average in client profitability and client retention. As a result, their valuations are usually above the industry norm.

Business valuation methods for veterinary practices

As with many other professional service firms, you can value a veterinary practice using a number of methods under the standard asset, income and market valuation approaches.

Successful vet practices are frequent acquisition targets. If you need to determine the market value of your clinic, comparison to recent selling prices of similar practices is a good choice.

You can calculate your business value based on the practice’s financial performance and the valuation multiples derived from comparable practice sales. These multiples are ratios that relate the actual practice selling prices to its revenues, profits, cash flows, assets or owners’ equity.

Here are the valuation multiples commonly used in valuing veterinary practices:

• Sale price to annual net sales or gross revenues.
• Sale price to EBITDA and EBIT.
• Sale price to net income.
• Sale price to seller’s discretionary earnings (SDE).

Example - valuing a private veterinary practice using valuation multiples.

Let’s consider a typical vet clinic with the following financials:

• Practice annual net sales: $300,000.
• EBITDA: $56,000.
• Net income: $33,000.
• Seller’s discretionary earnings: $110,000.

We pick a set of reasonable valuation multiples and estimate the practice value as shown in this table:

By convention, these practice value estimates include most business tangible assets and goodwill. The value of real estate, cash, and receivables is not included - a common arrangement in an asset sale of a professional practice.

Other business valuation methods you can use

Even if you need an informal business valuation check for your practice, it is always a good idea to use several valuation methods. No one method is better than the other. The combination gives you a solid coverage and much more reliable estimate of practice worth than a single calculation.

If you plan to share your practice appraisal with other business people, tax authorities or legal experts, a multi-method practice valuation is a must.

For valuing a small owner-operator managed veterinary clinic, consider using the venerable Multiple of Discretionary Earnings method. This income-based valuation technique lets you calculate your practice value based on its earnings and a number of key financial and operational performance factors.

An established clinic may have built up substantial business goodwill. You can calculate the value of goodwill using the Capitalized Excess Earnings method, known as the Treasury Method.

If you are negotiating with professional investors or lenders, the Discounted Cash Flow method should be among your choices. This formal business valuation technique is the common way to determine the value of a professional practice based on its earnings outlook and risk assessment.

Veterinary Practice Valuation using a Set of Methods

Private law practice ownership transfers have been on the rise in recent years. Not surprisingly, the issue of valuing a law firm has gained in importance.

In the US private law firm sales are endorsed by the American Bar Association under the Model Rule 1.17. A growing number of states now permit the sale of a privately owned law practice.

Recent sales of law practices offer you a defensible way to estimate the value of your law firm. Valuation multiples derived from comparable law firm sales are a  common way to value a law practice. Price to gross revenues is the most typical multiple used to assess the practice value.

Law practice goodwill - a large part of practice value

More than many other professional service businesses, private law firms tend to develop considerable goodwill. This is very important since the overall practice value is affected by how transferrable the goodwill is. As in all professional practices, goodwill is actually made up of two parts: the personal goodwill and the practice goodwill.

Law firm value is driven by goodwill tranferrability

The distinction is significant because it is generally much easier to transfer the practice goodwill to the new owners. Personal goodwill, as the name implies, is created by the individual porofessionals.

Client loyalty translates into repeat business for an established law practice. The question is: what happens when the current owner leaves the law firm?

Client retention and earnouts

Client retention is one indication of how well the practice retains its value over time. Private law practice sales often entail earnouts. Under an earnout arrangement, a portion of the law firm’s sale price is held back for a period of time. If the client retention goals are met, the amount held back is paid to the sellers.

Law firm value depends greatly on its size

Market-based valuation multiples vary to a large extent by law firm size. It is not unusual for a law practice grossing over $1,000,000 in annual receipts to command a price to gross revenue valuation multiple greater than 1.5 times.

For smaller firms grossing under $300,000 the valuation multiples rarely exceed 0.5 times the annual revenues. Again, one reason is that the larger law firms tend to do a better job of creating the practice goodwill. In contrast, most of the goodwill in a small law firm is personal in nature.

Hardware stores, classified under SIC 5251 and NAICS 44413, are a sizable part of the retail industry. In the US alone there are over 27,000 hardware stores in operation employing just over 173,000 staff. This retail industry segment generates more than $17 billion in annual gross sales.

Hardware retail business is small business

Yet an average hardware store is typical small business - employing a staff of 6 and producing around $700,000 in annual gross revenues.

These privately owned hardware retail companies are a critical part of the industry: over 95% of hardware stores employ fewer than 25 staff and generate more than $10 billion in annual sales. That is more than 60% of the industry total!

Hardware retail business valuation - market approach

Hardware stores are sold often. If you need to determine the value of a business in this industry, consider using the market-based valuation methods. You can develop a very good idea of what a business is worth by comparison to recent sales of similar private companies.

Valuation multiples derived from hardware store sales are the tools you can apply to value your own business.

For small hardware stores, the typical valuation multiples are these:

• Business sale price to gross revenues or net sales.
• Business sale price to seller’s discretionary cash flow.
• Business sale price to furniture, fixtures and equipment (FF&E) assets.

By convention, the value of business inventory is added to the estimate you get with the above valuation multiples.

Examples - valuing a hardware store using multiples

Let’s consider a typical privately owned hardware retail operation with the following current financials:

• Annual gross sales: $700,000.
• Seller’s discretionary cash flow: $55,000.
• FF&E assets valued at: $70,000.
• Inventory of $225,000.

We pick a reasonable set of valuation multiples for 2009:

• 0.1 times the gross sales.
• 1.4 times the seller’s discretionary cash flow
• 1.5 times the FF&E assets.

Here are the valuation results for this sample business:

• Business value based on gross revenues: $295,000.
• Value based on discretionary cash flow: $302,000.
• Value based on FF&E assets: $330,000.

The average business value is then $309,000.

Hardware store valuation - effect of the economy

Much like the rest of the retail industry, hardware stores are not immune to the economic ups and downs. The business valuation results above give you a reasonable number in the current economic environment.

If we look back in the 2006 - 2007 timeframe, the business valuations were much different. In fact, our example business would be worth around $375,000 at the end of 2007. That’s a differece of some 18%!

Reasons for decline in valuations

This business value change reflects how business people currently see the earnings prospects of small hardware retailers and assess business risk. Business sales require access to large sums of acquisition capital. At the moment that capital is hard to come by.

In addition, business buyers are very careful in assessing the earnings outlook for a business they consider to buy. Having to service a large bank loan or seller’s note against unstable business earnings is not a good recipe for success.

Earnout agreements may be a good option to close a sale - and spread the risk between the business buyer and seller. You set aside a portion of the business selling price that will be paid out to the seller if the business achieves its financial objectives in the future.

For example, 50% of the contract purchase price may be held back for a year. The business seller gets this money if the revenue targets, above a baseline minimum, are reached then.

Business Valuation based on Sale Comps, Assets and Income

Do you own a small pest control company? Perhaps plan to buy one? In either case, knowing what the business is worth is essential.

Privately owned pest control firms, classified under the SIC code 7342 and NAICS 56171, are a common service business. Established companies in this industry, especially those with a track record of positive earnings, are a frequent acquisition target.

Large number of pest control business sales = reliable valuation multiples

This is good news indeed. Recent business sales of pest control companies offer you an excellent way to estimate the value of your company. The typical method is to use the valuation multiples derived from recent sales of comparable pest control businesses.

You can come up with a very comprehensive estimate of your business value by applying these valuation multiples to your business financials. Here is the list of the typical multiples used for pest control business valuation:

• Business price to gross revenues or net sales.
• Business price to gross profit.
• Business price to net income.
• Business price to EBIT and EBITDA earnings.
• Business price to Seller’s discretionary cash flow (SDCF).
• Business price to Furniture, Fixtures and Equipment (FF&E) Assets.
• Business price to total business assets.

Picking the valuation multiples that best reflect your company’s value drivers

Using a number of valuation multiples at once can tell you quite a bit about the key value drivers for your company. For example, established, highly profitable businesses are best valued using the earnings-based valuation multiples.

In fact, the business value spread is the smallest if you use the Price to Net Income multiples. This means that the business buyers and sellers tend to rely on the pest control company’s profitability as the preferred basis for business valuation in order to support the asking or offer price.

On the other hand, a young company may be showing good revenue but profits that lag behind the industry norm. In this case, the price to gross revenue valuation multiple is a better choice to demonstrate the business value.

Price to FF&E assets is another choice to value a company that has invested heavily in equipment, business automation and management systems.

Example - using valuation multiples to estimate the value of a small pest control company.

Let’s consider a typical small pest control business with the following current financials:

• Gross annual revenue: $650,000.
• Net Sales: $600,000.
• Net Income: $50,000.
• EBITDA: 65,000.
• Seller’s discretionary cash flow: 140,000.
• FF&E Assets: $350,000.
• Inventory: $80,000.

To calculate the fair market value of the business for this example, we pick these valuation multiples:

• Price to gross revenue: 0.7.
• Price to net sales: 0.76.
• Price to net income: 10.5.
• Price to EBITDA: 8.25.
• Price to SDCF: 3.2
• Price to FF&E assets: 1.4

Your business financials X valuation multiples = business value

Our estimates of the business value are as follows:

• Based on gross revenues: $535,000.
• Based on net sales: $456,000.
• Based on net income: $546,000.
• Based on EBITDA: $536,250.
• Based on SDCF: $528,000.
• Based on FF&E assets: $570,000.

Note that, by convention, the market value of business inventory is added to the value estimates based on gross revenues, SDCF and FF&E assets. When doing your own business valuation be sure to adjust your inventory levels to what is good and saleable. Remove the inventory that is obsolete, damaged or lost.

You can use the business value estimates from above to come up with the value range or a single average number:

Business value range: $456,000 - $570,000.

Average business value: $528,542.

Incidentally, either way of concluding the business value is endorsed by the recent AICPA SSVS No 1 business appraisal standard.

Classified under the SIC 5719 code, home furnishings stores are a major segment of the retail industry. If you need to value such a business, you have a choice of well-known methods to get the job done.

Perhaps the best known approach to valuing a home furnishings company is by comparison to recent sales of similar businesses. Using the actual business selling prices and financial performance parameters of such businesses, you can come up with valuation multiples to estimate what your business is worth.

Valuation multiples typically used to value home furnishings stores

Here is our list, starting with the most accurate valuation multiple:

• Business sale price to gross profit.
• Price to net sales.
• Price to EBITDA.
• Price to EBIT.
• Price to net income.
• Price to total business assets.

Since all valuation multiples are statistically calculated from a number of comparable business sales, the accuracy of each multiple depends on its spread. A tighter spread means that you can predict your business value with greater accuracy using the multiple.

Example - using a number of valuation multiples to estimate the business value

We will consider a typical privately owned home furnishings company generating $1,000,000 in net sales, $500,000 in gross profits, $75,000 in EBITDA; $50,000 in EBIT; $45,000 in net income and $220,000 in total assets.

We pick a set of reasonable valuation multiples to do our estimation:

• 0.7 times the gross profit.
• 0.4 times the business net sales.
• 5.6 times the EBITDA.
• 5.8 times the EBIT.
• 6.2 times the net income.
• 1.5 times the total assets.

Note that our valuation multiples include an estimated $100,000 in inventory.

Applying the multiples to the business financial performance numbers gives us the following set of business fair market value estimates:

• Business value based on gross profit: $350,000.
• Based on net annual sales: $400,000.
• Based on EBITDA: $420,000.
• Based on EBIT: $290,000.
• Based on net income: $279,000.
• Based on total business assets: $330,000.

Averaging all these estimates gives us the combined business market value of $344,833. As is typical under the market business valuation approach, this value figure covers the business tangible assets and goodwill. The values of business owned real estate, non-operating assets, cash and accounts receivable are extra.

Other business valuation methods for home furnishings retail stores

If you want your business valuation results to be taken seriously, consider using a number of income and asset-based valuation methods as well.  This gives you two more ways to assess what your business is worth - based on its earning capacity, risk and asset base.

For owner-operator managed home furnishings businesses, the Multiple of Discretionary Earnings method is a highly recommended choice. In addition to business discretionary earnings, this method lets you determine your business value based on the assessment of 14 key financial, operational and marketing performance factors.

If your company has a long track record of success in its market place, the value of business goodwill can be a big part of the total business value. Consider using the well-known Treasury Method in your business appraisal - an established way to value a business as a sum of its tangible assets and business goodwill.

Valuing a Business Three Ways

Catering companies are a major segment of the food and drink industry, classified under SIC 5812 and NAICS 72232. Successful catering businesses sell quite often. This is good news if you need to determine the fair market value of your company.

In fact, valuation multiples derived from recent sales of similar firms give you an accurate and highly defensible way to estimate what your business is worth.

For a catering business, the most commonly used valuation multiples are these:

• Business sale price to gross annual revenues.
• Business sale price to furniture, fixture and equipment (FF&E) assets.
• Business sale price to seller’s discretionary cash flow.

Typically, the value of business inventory is added to the value estimates.

We have listed these valuation multiples in the order of their accuracy. Since the multiples are statistically derived from a number of business sales, a key measure of their accuracy is the value spread. The closer the actual valuation multiples to each other, the more accurately you can predict your own business value.

Indeed, the business price to gross revenue valuation multiple shows a spread that is about 45% tighter than the discretionary cash flow based estimates.

Example - using valuation multiples to estimate the value of a catering business.

Consider a typical catering company that generates $500,000 in annual gross sales, owns $100,000 in fixed assets, carries $10,000 in inventory and throws off $120,000 in discretionary cash flow. To calculate the business value, we pick a set of reasonable valuation multiples as follows:

• 40% of gross revenues.
• 2.5 times the value of furniture, fixtures and equipment.
• 1.8 times the seller’s discretionary cash flow.

This gives us the following business value estimates, including the inventory:

• Based on business gross revenues: $210,000.
• Based on FF&E business assets: $260,000.
• Based on seller’s discretionary cash flow: $226,000.

Taking the average of the above numbers gives the likely business market value of $232,000.

Can your business sell for a higher price?

Each business is unique. In addition, the circumstances of each business sale are different. Hence, it is quite possible that your business can be worth more or less on the market. Some key factors that affect the business market value:

• Availability of financing, especially seller financing. All-cash deals tend to fetch lower prices than financed business sales.
• Specific motivations of the business buyer and seller. It is hard to get a fair market value for the business whose owners are compelled to sell.
• Timing and effectiveness of the business for sale marketing effort. The more qualified buyers are interested in your business, the higher the likely selling price.