How to Value a Sign Manufacturing Business
According to IBIS World, there are approximately 29,500 sign manufacturing businesses in the United States. These businesses create and design billboards, scoreboards, signage, and digital advertising displays. Due to a high and increasing amount of businesses in the United States, the sign manufacturing industry retains steady demand. In addition, using signs and digital advertisements continues to be an effective marketing strategy for businesses. As such, buying, expanding, or selling a sign manufacturing business can be lucrative. However, there are various factors that may negatively impact your sign manufacturing business. For instance, this industry is very fragmented and competitive. Additionally, economic conditions can fluctuate and reduce the demand for sign manufacturing services. To prepare for these challenges, it is beneficial to learn how to value a sign manufacturing business.
To learn how to value a sign manufacturing business it is best to obtain a business appraisal. This will determine the fair market value of a sign manufacturing business. As a professional business appraiser, Peak Business Valuation is happy to help! We provide business appraisals for sign manufacturing businesses across the country. We can also answer any questions about valuing a sign manufacturing business. Get started today by scheduling a free consultation below!
How to Value a Sign Manufacturing Business
There are various approaches to valuing a sign manufacturing business. Often, business appraisers use the market approach and/or the income approach as part of the valuation process. Each valuation approach serves a different purpose. When valuing a sign manufacturing business, business appraisers determine which method is best for your business. This can involve using a combination of valuation approaches depending on the reason for the business valuation.
Valuing a Sign Manufacturing Business Using the Market Approach
The market approach is a common valuation method when valuing a sign manufacturing business. The market approach resembles the approach that a real estate appraiser takes when valuing a home. Real estate appraisers compare the home to similar properties that have recently sold in the same area. Doing so helps them determine a fair value of the property. When using the market approach to value a sign manufacturing business, a business appraiser looks at similar businesses that recently sold. If the business is private, they will refer to private transaction databases to gather information.
Multiples for a Sign Manufacturing Business
The market approach then uses valuation multiples to calculate the value of a sign manufacturing business. Valuation multiples are ratios that compare a business’s value to a financial metric such as cash flow, earnings, or sales. To find the valuation multiples for a sign manufacturing business, valuation experts apply the proper NAICS or SIC code. Below, we discuss valuation multiples for sign manufacturing businesses.
SDE (Seller’s Discretionary Earnings) Multiples for a Sign Manufacturing Business
- The SDE multiple compares the value of a sign manufacturing business to its seller’s discretionary earnings. Using the SDE multiple helps calculate the value of a sign manufacturing business by assessing its cash flow. This multiple is common when valuing a sign manufacturing business.
EBITDA Multiples for Sign Manufacturing Businesses
- The EBITDA multiple reflects a sign manufacturing business’s earnings before interest, taxes, and amortization. This multiple measures the return on investment an operator can expect from a sign manufacturing business.
REVENUE or SALES Multiples for a Sign Manufacturing Business
- The revenue multiple measures the value of a sign manufacturing business based on its revenue. Using this multiple involves multiplying the multiple by the total amount of revenue a sign manufacturing business generates.
The valuation multiple the business appraiser uses depends on the type of business transaction and the reason for the business valuation. Business appraisers use their knowledge to determine which valuation multiples are best for your sign manufacturing business. To learn more, see Valuation Multiples for a Sign Manufacturing Business.
Valuing a Sign Manufacturing Business Using the Income Approach
The income approach is also popular when determining how to value a sign manufacturing business. When using the income approach, valuation analysts consider the risks associated with the sign manufacturing business. In the following section, we share a few common risks for buying, expanding, or selling a sign manufacturing business.
- Technology: There have been many technological advancements in the industry such as digital signage and printing techniques. To succeed, it is vital to stay up-to-date with technology.
- Competition: The sign manufacturing industry is fragmented and competitive. As such, it is crucial to set your sign manufacturing business apart from competitors.
- Marketing: Effective marketing can help you acquire more clients. This can help increase sales revenue and profitability at a sign manufacturing business.
- Reputation: The most successful sign manufacturing businesses are those that have built a strong reputation. As such, it is important to provide high-quality and efficient services.
Methods to Value a Sign Manufacturing Business Using the Income Approach
When using the income approach, there are two methods that a valuation expert may use when valuing a sign manufacturing business. The first is the capitalization of cash flow method, and the second is the discounted cash flow method. Knowing how to value a sign manufacturing business using these methods is essential. These valuation methods assess the value of a sign manufacturing business based on its income potential. We discuss these valuation approaches below.
Capitalization of Cash Flow Method
- Valuation experts often use the cash flow method to value sign manufacturing businesses with long and stable histories. With the capitalization of cash flow method, an analyst determines an appropriate measure of economic income for one time period. This time frame is divided by a capitalization rate. The capitalization rate reflects an appropriate rate of return an investor can expect from the sign manufacturing business. It also analyzes the risks an investor may encounter to meet expected earnings.
Discounted Cash Flow Method
- The discounted cash flow method is best for sign manufacturing businesses with strong financial histories. It is also commonly used for businesses that have built reliable forecasts. This valuation method relies on 3-5 years of projections to determine the value of future cash flows. The valuation analyst divides the future cash flows by a discount rate rather than a capitalization rate to determine the value of a business. Keep in mind, this method is less common since it relies on future cash flow projections which can be subjective.
Summary
When valuing a sign manufacturing business, a valuation expert may use the market approach and/or the income approach. These valuation methods provide important insights that help business appraisers determine the value of a sign manufacturing business. The method(s) they use depends on various factors. To know which method is most applicable to your sign manufacturing business, receive a business appraisal. This can help you understand the value of a sign manufacturing business as well as the risks and rewards associated with it. This information is vital if you are looking to buy, grow, or sell a sign manufacturing business.
Peak Business Valuation, business appraiser, works with sign manufacturing businesses throughout the country. We are happy to help you find success in the sign manufacturing industry! Peak can provide you with a business valuation for a sign manufacturing business. Any questions about how to value a sign manufacturing business are also welcome! Start today by scheduling a free consultation with Peak Business Valuation below.
See also Valuing Sign Manufacturing Businesses and Value Drivers for a Sign Manufacturing Business.
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