OnTheShore
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Obviously depends on the multiplier, but I think the usual approach is EBIT*multiplier = Business Value, including tangible assets used in the business.That was easier to understand. Now I did get a little confused. If a business is making a profit, that should have some value in addition to the tangible assets. So I imaginedNot necessarily -- as Diva says, businesses in different industries might use a different multiplier -- but the idea is similar: one way to value a business is to use some multiple of the revenue.Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.Arks said:I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.
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ETA- Here is an explanation that might be easier to get one's head around: http://www.bizbuysell.com/seller_resources/valuation-rules-of-thumb/14/
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EBIT * multplier + tangible assets = Business Value
and I imagined
Gross revenue x multiplier = Business Value
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Thinking being that the profit is your return on investment; and the amount you invested includes the tangible assets as well as the value of the intangibles...