Venture Research Service Provider
If you are considering buying or selling a service industry business you need to start with an evaluation. This can be very complex and the use of a venture research service provider can often give you a value that you can easily defend. The following article outlines the process, and is extracted from FBB Group Ltd: https://www.fbb.com/company-information/recentarticles/how-to-value-a-service-business.
Service businesses run the gamut, from accounting firms, to drycleaners, to janitorial services, engineering, public relations firms, and many other options. Despite their disparity, they all have one thing in common: offering a service to clients.
Valuing a service business involves many factors - a tidy, one-size-fits-all formula doesn't exist. That being said, sellers should recognize that buyers will be particularly interested in certain characteristics for most service businesses. This, again, is where a venture research service provider can come in.
Normally, valuation is based on several criteria, including: history of profitability, cash flow, overhead, intellectual property, company reputation, number of years in business, opportunities for further growth and added profits, stability of key employees/management team, and customer diversification.
Crucial areas for valuation include intellectual property, ongoing relationships with clients, and having a good team in place - ensuring the company will retain its competitive edge, even when the seller (who typically drives new and repeat business) leaves.
Without significant capital assets, key customers and employees are critical. A strong management team adds to the value of a service business (often more so than in manufacturing) and, conversely, it can detract from value when there's a poor or inexperienced team. Another measure of value may include the amount of market share. Companies that provide a niche service and don't have much, if any, competition will command higher multiples of value.
Cash flow is "king," so the primary consideration for bankers is a buyer's ability to stay current on loans for acquisitions and working capital. Banks focus heavily on reliable cash flow for service businesses, given that there is little, to no, collateral within the service business itself.
Whether you're in the market to buy or sell, understanding the various considerations of valuation for a service business will make the process smoother and increase the probability of a more successful transaction.
Dr. Vinturella, has over 40 years experience as a management and strategic consultant, entrepreneur, and college professor. He is a principal in the business opportunity site https://www.jbv.com and its associated blog. John recently released his latest book, “8 Steps to Starting a Business. “ See https://www.jbv.com/8steps, available on Amazon.