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How to Value Food and Beverage – Business Valuation

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    How to Value Food and Beverage – Business Valuation?

    Food and Beverage – Business Valuation: When a food business is considered sold, the owner wants to get the best price or fair monetary value of his business. A business owner/seller values his company is not the same way a buyer values the business.

    Thus, a prior understanding of how potential buyers value a business is essential to a seller. This will give him the idea of evaluating others and whether the buyer is offering him good money value. With the proper business valuation, a business owner who wants to sell his business can negotiate right with the prospective buyer.

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    Approaches of Business Valuation

    A buyer can use any of the following approaches to be discussed to value your food and beverage business before paying to take over:

    1. Discounted cash flow method approach
    2. Multiple based valuation approach
    3. Liquidation value approach or replacement cost

    Discounted Cash Flow

    This is a general approach used in knowing the value of businesses such as the food and beverage businesses. It is often represented with the acronym – DCF. This business valuation methodology considers the cash flow the company will generate in the future. It also assumes the risks that may be involved with future cash flows.

    Multiple Based Valuation

    Typically, this business valuation method is used to confirm or support a business valuation done with the discounted cash flow methodology. Applying competitors multiples is a common approach used.

    Liquidation Value Approach

    This approach is also known as replacement cost. When a company has specialized and unique machinery, a buyer can consider the replacement cost of equipment, property, and plant to support every other valuation approach.

    Things to Consider in a Restaurant Valuation

    The following should be considered when carrying out a restaurant or any beverage business valuation:

    1. Quality of earnings
    The higher a business earns, the higher the valuation multiple. Also, the lower the company’s earnings result, info lowers the business valuation.

    2. Size
    The valuation of a large food and beverage business in terms of income streams, diversified products and services, and a low-risk profile is higher than a business that is not large.

    3. Control premium
    Control premium will be included in the valuation multiple when a buyer acquires over 50% of the shares. This is done to show the control power or right of the business.

    4. Economy
    The current economy and the market can affect the value of a food business. If the current economy is low, the company’s value will reduce and vice versa. It is better to sell your business when the economy and market are favorable, as it will increase the value of your business.

    5. Age of the business
    When the business is well established and doing well, an investor will be willing to buy it at a high price. He will do this as he is confident of the returns. Investors are interested in the number of years you have grown the business. They want to know how consistent the company is and if they will be losing when they buy.