In this podcast episode of Before You Buy or Sell a Business, host Jared Johnson talks market price analysis with Lyndsey Davino, a business broker based in Las Vegas. Davino shares how she got into business brokerage, starting with her background in commercial real estate and property management. For Lyndsey, the industry is challenging, exciting and never gets boring.
Breaking Down Market Price Analysis
Johnson and Davino discuss the recent transaction of a pest control business as an example of market price analysis and how a lender evaluates it for financing. Lyndsey explains the concept of a market price analysis (MPA). It helps determine the value of the business based on financial performance, operations, and comps. Jared goes through the numbers of a closed loan for a pest control business in southern Nevada and explains the difference between accrual and cash basis accounting.
They go over the top-line revenue and net income for 2020 and 2021 and discuss the bankers’ add-backs, including depreciation, amortization, and officers’ salary. Johnson mentions auto expenses as an example of a typical add-back. Davino talks about the difficulty of proving some add-backs and the need to be more conservative in some cases. They also mention some unusual add-backs, such as family members’ salaries and household food from restaurant suppliers. Johnson emphasizes the importance of looking at the cash flow to determine whether the numbers work for a loan.
A Broker’s Advice to Small Businesses Looking to Sell
The conversation continues with Lyndsey Davino emphasizing the importance of pricing a business competitively and realistically, based on the analysis of the provided numbers and details about the business. She advises against relying on internet rules of thumb and emphasizes the need to work with a professional broker. Pricing the business right the first time is key. Ultimately, the goal is to find a buyer who is reasonable and willing to pay a fair price for the business.
Lastly, Lyndsey Davino advises business owners to plan their exit strategy as soon as possible to prepare for any unforeseen circumstances that may arise. She also mentions that not every business is sellable. So, business owners must educate themselves and talk to a business broker to make their business sellable. Lyndsey’s advice to potential buyers: assess their financial situation. They should get pre-qualified for an SBA loan before approaching a business broker.
To contact Lyndsey, email her at: Lyndsey@FCBB.com or call her at (702) 772-7542
If you have questions for Jared, visit JaredWJohnson.com
DISCLAIMER: The views and opinions expressed in this program are my own and/or those of my guests. They do not necessarily reflect the views or positions of my employer.
This conversation covers:
- Property Management
- Listing a Business for Sale
- Market Price Analysis for Small Businesses
- Add Backs and Cash Flow Analysis for Business Valuation
- Valuation of a Pest Control Business: Using Comparable Sales and Multiple Adjustments
- Analysis of Tax Returns and Seller’s Discretionary Earnings for Business Loan Approval
- Lease Agreements
- Being a Woman in the Brokerage Industry
- Dealing with Landlords in Commercial Real Estate Transactions