How to Value a Paint Wholesaler
There are less than 3,000 paint wholesalers throughout the United States. These businesses purchase paint and other special coatings from manufacturers and resell them to downstream markets. According to IBIS World, the paint wholesale industry generated over $20 billion dollars despite economic instability. Moving forward, we can expect an increase in demand for industry products. This is due to improving economic conditions and other factors such as increasing consumer spending. In addition, demand from the automotive industry will likely increase. As such, the paint wholesale industry presents a high revenue growth opportunity for those looking to buy, grow, or sell a paint wholesaler. Whether you are buying, expanding, or selling, it is crucial to understand how to value a paint wholesaler.
There are many factors to consider when valuing a paint wholesaler. As such, determining the value of a paint wholesaler can be complex. It is best to obtain a business valuation for a paint wholesaler. Generally, there are two approaches a business appraiser uses to value a paint wholesale business. This article highlights how to value a paint wholesaler. Peak Business Valuation, business appraiser, values paint wholesalers across the country. We are happy to provide you with a business valuation and answer any questions you may have! Start today by scheduling a free consultation with Peak Business Valuation, business appraiser.
How to Value a Paint Wholesaler
As part of a business valuation for a paint wholesaler, a valuation expert at Peak Business Valuation often uses the market approach and/or the income approach. At Peak, our appraisers receive thorough and extensive training. They use their expertise to determine which methods are best for valuing a paint wholesaler.
Valuing a Paint Wholesaler Using the Market Approach
The first approach an expert commonly uses when valuing a paint wholesaler is the market approach. Using the market approach to value a paint wholesaler is similar to how a real estate appraiser values a house. The real estate appraiser compares the property to similar properties that were recently sold on the open market. This helps the real estate appraiser determine a fair market value for the house.
During a business valuation for a paint wholesaler, the appraiser compares the paint wholesaler to similar companies that recently sold. If the wholesaler is a private business, the appraiser uses private transaction databases. In addition, the valuation expert analyzes financial statements, risks, and key value drivers for a paint wholesaler. Doing so helps the expert determine appropriate valuation multiples for a paint wholesaler. By following this process, an appraiser at Peak Business Valuation can determine the value of a paint wholesaler. Below, we discuss the common multiples a business appraiser uses.
Multiples for a Paint Wholesaler
Peak Business Valuation uses the applicable NAICS code or the SIC code to determine the appropriate multiples for a paint wholesaler. Valuation experts use multiples when valuing a paint wholesaler with the market approach. The following sections highlight the basic multiples for a paint wholesaler.
REVENUE or SALES Multiple For a Paint Wholesaler
- When using this valuation multiple, the appraiser applies a multiple to the paint wholesaler’s revenue.
EBITDA Multiple for a Paint Wholesaler
- The EBITDA multiple helps paint wholesalers to measure the expected return on investment.
SDE (Seller’s Discretionary Earnings) Multiple for Paint Wholesaler
- When working with the SDE multiple, the appraiser multiplies the paint wholesaler’s SDE by the multiple. This helps the business appraiser assess the company’s cash flow and determine its fair market value.
Valuing a Paint Wholesaler Using the Income Approach
Another common valuation method for knowing how to value a paint wholesaler is the income approach. The income approach is often used for businesses that are well-established and profitable. This approach assesses the risk of the paint wholesaler. Below, we detail a few risks associated with buying, growing, or selling a paint wholesaler.
- Competition. Paint wholesalers face intense competition from both large and small players. During a business valuation for a paint wholesaler, the business appraiser looks at what differentiates your business from competitors
- Supplier Relationships. Having strong supplier relationships can help reduce financial risks at a paint wholesaler. As such, a valuation expert considers supplier relationships when valuing a paint wholesaler.
- Location. The location of a paint wholesaler has a significant impact on its value. With a prime location, paint wholesalers can reduce expenses and increase revenue.
- Market Volatility. The paint wholesale industry can be subject to fluctuating demand and market trends. When valuing a paint wholesaler, the valuation expert may look for market volatility.
Methods to Value a Paint Wholesaler Using the Income Approach
There are two popular methods under the income approach an appraiser uses when valuing a paint wholesaler. They are the capitalization of cash flow and discounted cash flow methods. To learn how to value a paint wholesaler using these methods, see the following paragraphs.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is often used when the paint wholesaler has an extensive history. As part of the capitalization of cash flow method, the valuation expert estimates a measure of economic income for one period. This period is then divided by an appropriate cap rate. The capitalization rate helps determine a reasonable rate of return an investor can expect. It also assesses any risks that may stop you from achieving your earnings. The above paragraphs discuss a few of these risks.
Discounted Cash Flow Method
- A business appraiser at Peak Business Valuations uses this method to determine the value of future cash flows. During the discounted cash flow process, the appraiser uses 3-5 years of projections. The valuation expert then discounts the future cash flows to present value using a discount rate. Keep in mind this method is best for businesses with strong financial histories. The discounted cash flow method may also benefit companies that have built reliable forecasts. However, this valuation method is less reliable because it is limited to future cash flow estimates which can be inconsistent.
Summary
When valuing a paint wholesaler, the appraiser may use the market approach and/or the income approach. With these methods, they are able to determine the fair market value of a paint wholesaler. This information allows you to take the next steps to increase the value of a paint wholesaler. The best way to start is by receiving a business valuation for a paint wholesaler.
Peak Business Valuation is a professional business appraiser. We work with many paint wholesalers throughout the country! We are happy to provide you with a business appraisal for a paint wholesale business. In addition, we can answer any questions you have about valuing a paint wholesaler. Learn how to value a paint wholesaler with Peak today! Schedule your free consultation below.
For more information read, Value Drivers for Paint Wholesalers, Valuing a Paint Wholesaler, Valuation Multiples for a Paint Wholesaler, and How to Value a Paint Wholesaler.
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