How are “Multiples” Determined for Specific Industries in Business Valuation?
Question: I am familiar with the concept of multiples of sellers’ cash flows or owners’ benefits as a means to determine value. My question is: How is the multiple determined? With the scarcity of verifiable information on business sales, how does one determine an appropriate multiple for an industry, specifically, the property management industry? Answer: If you spend anytime looking at businesses for sale, you’ll see multiples that can be “all over the place”. However, when a seller has the right professional assistance (i.e. CPA, business broker) the valuations will subscribe to certain historical formulas. Unlike residential or commercial real estate where comparables rule, every business is different, and so it is difficult to have any standardization that can be used without margin of error. Keep in mind that business valuation is an art, not a science. That being said, there are some general parameters regarding the range of multiples. Many of these evolved from the concept of w
