How to Value a Travel Agency
The travel industry generates trillions of dollars every year. For many countries, it is the cornerstone of the economy. As such, operating a travel agency can be very profitable. If you want to buy, expand, or sell a travel agency, it is critical to obtain a business valuation. During a travel agency valuation, you will discover how to value a travel agency. A business valuation also provides profound insights to help you reach your goals with a travel agency.
If you want to learn how to value a travel agency, receive a business valuation. During a travel agency valuation, a business appraiser will use proven methods to assess the value of a travel agency. This includes an assessment of the risks and opportunities associated with the company.
As a professional business appraiser, Peak Business Valuation values travel agencies regularly. We are happy to provide a business valuation for your travel agency! In addition, Peak can address any questions about valuing a travel agency. Schedule your free consultation with Peak Business Valuation below!
How to Value a Travel Agency Using the Market Approach
There are several common valuation approaches for valuing a travel agency. Peak’s valuation analysts often rely on both the market and income approaches. Each approach uses a different basis of valuation. As such, a business appraiser will select the valuation approach that best suits the travel agency and the purpose of the travel agency valuation. This may include a combination of valuation methods.
Valuing a Travel Agency Using The Market Approach
The market approach is one of the most common methods in small business valuation. This approach is much like a real estate appraisal. During a real estate appraisal, an expert considers similar properties sold in the area. For travel agencies, business appraisers assess comparable businesses recently sold on the open market. If the travel agency is privately owned, valuation experts rely on private transaction databases to gather data.
Multiples for a Travel Agency
When valuing a travel agency with the market approach, business appraisers apply valuation multiples. These are financial ratios that measure the value of a travel agency based on financial metrics such as revenue, earnings, or cash flow. Valuation experts will apply the appropriate NAICS or SIC code to find travel agency multiples. Below are a few key multiples experts use to value a travel agency:
SDE (Seller’s Discretionary Earnings) Multiples for a Travel Agency
SDE multiples measure a travel agency’s value based on its seller’s discretionary earnings. This is a popular multiple for valuing a travel agency.
EBITDA Multiples for a Travel Agency
EBITDA multiples represent the travel agency’s earnings before interest, taxes, depreciation, and amortization. This multiple helps business appraisers understand the return on investment (ROI) a travel agency may generate.
Revenue or Sales Multiples for a Travel Agency
Revenue or sales multiples measure a travel agency’s value based on its revenue.
When valuing a travel agency, a business appraiser determines which travel agency valuation multiples are most appropriate. To learn more about how to value a travel agency with the market approach, read What is a Valuation Multiple?
How to Value a Travel Agency Using the Income Approach
The income approach is another common business valuation approach. This method assesses the value of a travel agency based on its future cash flow potential. In addition, the income approach considers any risks associated with buying, expanding, or selling a travel agency. Below we discuss some common risks in the travel agency industry:
- Market Trends: The travel industry is influenced by changes in consumer behavior such as shifts towards online booking platforms. To succeed, it is important for travel agencies to keep up with market trends.
- Reputation and Customer Loyalty: A travel agency’s reputation for reliability and customer service is key to its success. Agencies with a history of cancellations, poor customer service, or mismanagement may see a decline in value.
- Competition: The rise of online travel agencies presents a significant challenge to travel agencies. To compete, agencies must differentiate by offering personalized services.
Methods to Value a Travel Agency Using the Income Approach
Moving on, there are a few common variations of the income approach. The most common income approaches are the capitalization of cash flow method and the discounted cash flow method. Below, we discuss how to apply these methods when valuing a travel agency.
Capitalization of Cash Flow Method
The capitalization of cash flow method is often used for travel agencies with a stable financial history. The valuation expert will determine an appropriate economic income for one period and divide it by a capitalization rate. This helps determine an accurate rate of return for an investor. The capitalization of cash flow method also accounts for any risks a buyer may face.
Discounted Cash Flow Method
Moreover, the discounted cash flow method is best for travel agencies with predictable income forecasts. Valuation analysts project future earnings over a 3-5-year period and divide these earnings by a discount rate. The discounted cash flow method considers the time value of money. However, it is important to note that this method is less common since it relies on future estimates.
Summary
If you are looking to buy, grow, or sell a travel agency, it is important to understand how to value a travel agency. A travel agency valuation will provide you with a clear understanding of the fair market value of your travel agency. In addition, a business appraiser will highlight the strengths and weaknesses of your travel agency. You can use this information to take the next steps in maximizing the value of a travel agency.
Peak Business Valuation, business appraiser, is here to help you with a travel agency valuation! We value travel agencies throughout the United States. In addition, we can answer any questions on valuing a travel agency or how to value a travel agency. To start today, schedule a free consultation with Peak Business Valuation below!
