How to Value a Footwear Wholesaler
Demand for the footwear wholesale industry has significantly reduced over the past several years. This downward trend is a result of poor economic conditions as well as intense competition. Although the economy has recovered, industry revenue will not likely return to pre-COVID rates. In addition, competition from online retailers is increasing. If you are looking to buy or sell a footwear wholesaler, it is important to understand its value. This knowledge may help you find success in the footwear wholesale industry. It is best to start by learning how to value a footwear wholesaler.
There are many factors to consider when valuing a footwear wholesaler. On your own, this can be a complicated process. As such, it is best to receive a professional business appraisal. During a business valuation, experts use valuation methods to determine the fair market value of a footwear wholesaler. In this article, we discuss two common valuation approaches a business appraiser uses in a business valuation. Keep in mind, this article is only a guide. For specific information about valuing a footwear wholesaler you are buying or selling, receive a business valuation. Peak Business Valuation, business appraiser, is happy to help! We value footwear wholesalers on a regular basis. Peak can provide you with a business valuation and answer any questions you have. Schedule a free consultation with Peak today!
How to Value a Footwear Wholesaler
Peak Business Valuation, business appraiser, commonly uses the market approach and/or the income approach when valuing a footwear wholesaler. The approach the business appraiser uses depends on various factors. This includes the purpose of the appraisal, type of business, time and cost restraints, etc… Business appraisers receive thorough training. As such, they will use their expertise to determine what is best for your footwear wholesale business. This may involve using a combination of valuation approaches.
Valuing a Footwear Wholesaler Using the Market Approach
Often, business appraisers use the market approach when valuing a small business. This approach works similar to how a real estate appraiser evaluates a house. Typically, they compare the property to similar houses that recently sold on the market. This helps them estimate a fair market value of the property. With the market approach, the business appraiser compares your footwear wholesaler to similar businesses that have recently sold. If your wholesale business is a private company, the appraiser will rely on private transaction databases to gather relevant information.
Then, the valuation expert considers factors such as risks, value drivers, and financial statements. This analysis helps them determine which valuation methods and multiples are appropriate for your footwear wholesale business. By going through this process, the appraiser can accurately determine the value of a footwear wholesale business. In the following paragraphs, we discuss popular multiples for footwear wholesalers that business appraisers use.
Multiples for a Footwear Wholesaler
When utilizing the market approach for a business valuation of a footwear wholesale business, the appraiser works with multiples. To determine applicable multiples for a footwear wholesale business, a business appraiser relies on the appropriate NAICS or SIC code. The following are basic multiples commonly used when valuing a footwear wholesaler.
REVENUE or SALES Multiple for a Footwear Wholesaler
- When using a revenue or sales multiple, the appraiser applies a multiple to the footwear wholesaler’s revenue to estimate its value.
EBITDA Multiple for a Footwear Wholesaler
- Footwear wholesalers use an EBITDA multiple to determine the expected return on investment.
SDE (Seller’s Discretionary Earnings) Multiple for a Footwear Wholesaler
- The SDE multiple assesses a footwear wholesaler’s cash flow. Multiplying SDE by the multiple helps determine its fair market value.
For more information, read Multiples for a Footwear Wholesaler.
The methods and multiples the appraiser uses depend on various factors. To determine what methods and multiples are suitable for your footwear wholesale business, obtain a business valuation. Peak Business Valuation is here to walk you through the valuation process! You can schedule a free consultation with Peak Business Valuation today!
Valuing a Footwear Wholesaler Using the Income Approach
The income approach is another popular valuation method to value a footwear wholesale business. This approach focuses on evaluating the risks associated with the business. Below are a few common risks that an expert considers when valuing a footwear wholesaler. The valuation expert carefully assesses these risks during the valuation process.
- Supplier Relationships: It is vital for a footwear wholesaler to have strong supplier relationships. This may help save money and reduce production costs. A business appraiser may also consider the concentration of supplier relationships.
- Location: The location of a footwear wholesaler has a significant impact on its value. With careful consideration, your location can promote increased sales and profitability.
- Competition: Footwear wholesalers face intense competition from both small and large players. As such, it is crucial to set your footwear wholesaler apart from competitors.
- Inventory Management: To remain profitable, it is important for footwear wholesalers to have effective inventory management. Without this, footwear wholesalers may face challenges such as over or under-stocking.
Methods to Value a Footwear Wholesaler Using the Income Approach
When using the income approach, there are two methods typically used to value a footwear wholesaler. These methods are called the capitalization of cash flow method and the discounted cash flow method. Below, we detail how a business appraiser uses each method when valuing a footwear wholesale business.
Capitalization of Cash Flow Method
The capitalization of cash flow method is best for footwear wholesalers with a long and stable history. When using the capitalization of cash flow method, the appraiser calculates the economic income generated within a specific time frame. This income is then divided by a suitable capitalization rate. The capitalization rate represents a reasonable return an investor can expect. This method also considers potential risks that may stop the buyer from achieving expected earnings. We mention a few of these risks above.
Discounted Cash Flow Method
The discounted cash flow method is used to estimate the value of future cash flows by projecting them over a period of 3-5 years. The appraiser then discounts these projected cash flows to their present value using a discount rate. This method is most suitable for footwear wholesalers with robust financial histories. In addition, this method relies on footwear wholesalers that have developed reliable forecasts. However, this method is less reliable compared to other methods since it relies on future cash flow estimates which can be inaccurate.
When determining the value of a footwear wholesaler, the expert may use the market approach and/or the income approach. These methods can help determine the fair market value of a footwear wholesale business. By understanding the value of a footwear wholesaler you are buying or selling, you can find success in this industry.
The best way to learn how to value a footwear wholesaler is to receive a business valuation. Peak Business Valuation, business appraiser, is happy to help! Peak works with many footwear wholesalers throughout the country. We can provide you with a business valuation for a footwear wholesaler! Questions about valuing a footwear wholesale business are also welcome. Start by scheduling a free consultation with Peak Business Valuation today!
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