How to Value an Apparel Wholesaler
The apparel wholesale industry has experienced a decline in revenue over the past several years. This is due to intense competition from the e-commerce industry as well as poor economic conditions. Although conditions are improving, industry revenue will continue to decrease over the next several years. As such, there are many challenges that come with buying, growing, or selling an apparel wholesaler. Whether you are entering or exiting the industry, it is important to understand the value of an apparel wholesaler. By learning how to value an apparel wholesaler, you can find success.
There are many factors to consider when valuing an apparel wholesaler. This can be a very complex process. The best way to learn how to value an apparel wholesaler is by receiving a business appraisal. During a business appraisal, the expert will use valuation approaches to determine the value of an apparel wholesaler. Generally, there are two approaches a business appraiser uses when valuing an apparel wholesaler. This article discusses how to value an apparel wholesaler. However, this is only a guide. For specific information, receive a business valuation for an apparel wholesale business. Peak Business Valuation, business appraiser, is happy to help! We work with apparel wholesalers on a regular basis. Peak is happy to provide you with a business appraisal and answer any questions you may have. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser.
How to Value an Apparel Wholesaler
As part of a business appraisal, Peak Business Valuation often uses the market approach and/or the income approach to value an apparel wholesaler. The method that the appraiser uses depends on various factors. They will use their training and expertise to determine what method is best for your apparel wholesale business. Depending on the purpose of the appraisal, the valuation expert may use a combination of valuation methods.
Valuing an Apparel Wholesaler Using the Market Approach
First, the market approach is a common valuation approach for small businesses. This approach is similar to how a real estate appraiser values a house. First, they assess similar properties that have recently sold on the market. This helps them determine a fair value of the property they are appraising. When a business appraiser values your apparel wholesaler, they first compare your business to similar businesses that recently sold. If the apparel wholesaler is a private entity, the business appraiser will use private transaction databases.
Next, the business appraiser assesses risks, key value drivers, and financial statements. Doing so helps the appraiser determine what multiples are applicable to your apparel wholesale business. This process helps the appraiser accurately determine the value of an apparel wholesaler. In the following sections, we highlight the multiples a business appraiser commonly uses.
Multiples for an Apparel Wholesaler
To determine what multiples for an apparel wholesale business are applicable, a business appraiser uses the proper NAICS or SIC code. When using the market approach to value a business, the valuation expert uses multiples. Below, we highlight the basic multiples for an apparel wholesaler.
REVENUE or SALES Multiple for an Apparel Wholesaler
- When using a revenue or sales multiple, the business appraiser applies a multiple to the business’s revenue to estimate its value.
EBITDA Multiple for an Apparel Wholesaler
- Apparel wholesalers can determine the expected return on investment by using an EBITDA multiple.
SDE (Seller’s Discretionary Earnings) Multiple for an Apparel Wholesaler
- The SDE multiple is a common method that assesses a company’s cash flow. By multiplying an apparel wholesaler’s SDE by the multiple, a valuation expert can determine its fair market value.
The method and multiple that the business appraiser uses depend on various factors. To understand which methods and multiples are best for your apparel wholesale business, receive a business appraisal. Peak Business Valuation is happy to help! Start today by scheduling a free consultation with Peak Business Valuation.
Valuing an Apparel Wholesaler Using the Income Approach
Another common valuation method to value an apparel wholesaler is the income approach. This approach assesses the risks of an apparel wholesaler. Below we list a few common risks associated with buying or selling an apparel wholesaler. The business appraiser analyzes these risks when valuing an apparel wholesaler.
- Location: The location of an apparel wholesaler plays an important role in its success. With a prime location, apparel wholesalers can maximize sales revenue and reduce expenses.
- Supplier Relationships: It is also important for apparel wholesalers to have strong supplier relationships. Without this, apparel wholesalers may miss out on opportunities to save money and maximize profits. A high concentration of suppliers may increase risk.
- Competition: The apparel wholesale industry is extremely competitive. As such, it is vital for apparel wholesalers to differentiate from competitors. By making an apparel wholesaler stand out, you can earn a healthy portion of the market share.
- Financial Strength: Many apparel wholesalers struggle to remain profitable. As such, it is vital to promote financial strength with effective financial planning and saving. This can help keep your apparel wholesaler be profitable and productive.
Methods to Value an Apparel Wholesaler Using the Income Approach
Under the income approach, there are two main methods to use when valuing an apparel wholesaler. The first is called the capitalization of cash flow method, and the second is the discounted cash flow method. The following paragraphs discuss how to use these methods to value an apparel wholesaler.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is often used for apparel wholesalers that have a long and stable history. When using this method, the appraiser determines an appropriate measure of economic income for one period. This time frame is then divided by an appropriate cap rate. The capitalization rate represents a reasonable rate of return an investor can expect. In addition, it analyzes any risks that may stop the buyer from meeting expected earnings. Some of these risks we list above.
Discounted Cash Flow Method
The discounted cash flow method estimates the value of future cash flows by using 3-5 years of projections. The business appraiser discounts the future cash flows to present value using a discount rate rather than a cap rate. This method is typically best for apparel wholesalers with strong financial histories. In addition, companies that have built reliable forecasts may also benefit from the discounted cash flow method. However, this valuation method is less reliable because it is limited to future cash flow estimates which can be inconsistent.
Summary
As part of a business appraisal for an apparel wholesaler, the valuation expert may use the market approach and/or the income approach. Both of these methods help determine the fair market value of an apparel wholesaler you are buying or selling. With this knowledge, you can take the next steps to increase the value of an apparel wholesale business.
To learn how to value an apparel wholesaler, receive a business appraisal. Peak Business Valuation, business appraiser, is here to help! We value apparel wholesalers on a regular basis. We are happy to provide you with a business appraisal and answer any questions you may have about how to value an apparel wholesaler. You can get started today by scheduling a free consultation with Peak Business Valuation, business appraiser.
See also Valuation Multiples for an Apparel Wholesaler, Valuing an Apparel Wholesaler, and Value Drivers for an Apparel Wholesaler.
Schedule Your Free Consultation Today!
