How Much Is My Restoration Company Worth?

Multipliers are an integral part of business math. Determining a reasonable value for your restoration services is not hard to do if you take into account the 3-year average net profit and add back the seller’s discretionary expenses such as salary, benefits taxes & auto allowance, etc., but what about when multipliers come into play?

Franchises use a discount multiplier that's right - they reduce potential sales prices because these companies lack control over their businesses plus there' the 10% royalty fee due on all products/services.

Let's say you want to sell your business. You can use the 3-year average plus the seller’s discretionary expenses as a multiplier of 2.5 of how much it might be worth in today's market, but there is always room for negotiation so don't give up all those gains!

But before you get too excited there is more you need to know.

Your business will likely not sell at its full price and you will have to pay taxes on the majority of the sale. You will likely discount the asking price by 10% – 15% and the majority of your sale proceeds will be taxed as ordinary income at around 40%.

The final value of your business will depend on the amount you owe in debts and how much it's worth. You can reduce this initial figure by any debt, such as credit card payments or loans for buildings that aren't being used anymore; taxes have been estimated at around 30%. This leaves us with our starting point - what do I stand to gain if my company was sold today?

So let’s consider this scenario.?

The typical small restoration business does about $750,000 in annual sales and has a year-end net profit of around 15%.?

This net profit produces approximately $112,500. Add back salary and other owner relates expenses at approximately $75,000 and round up to $200,000.

Multiply this by 3 for a value of $600,000.

Take out taxes and some debt expenses and you are likely to have around $300,000 remaining.

Can you retire on $300,000 or less if you have to discount the asking price? I guess a person could retire on just about any amount – but would you want to retire on $300,000? Probably not! If you are a franchise owner, you are likely worse off.

Conclusion

If you want to retire with $1 million from the sale of your business, it’s going to take a lot of work. You need to achieve $3 million in sales and a 20% year-end net profit. This may seem daunting, but it is possible with the right planning and execution.

?Use the information in this article as a starting point for building your own path to retirement success. Are you ready to get started?

?DM me for a free consultation today and let us show you how it’s done.