How to Value an Arcade and Entertainment Center
The arcade and entertainment industry has experienced a decline in revenue and profit over the past several years. This is largely due to social distancing mandates imposed by COVID-19. Moving forward, IBIS World predicts the industry to grow as the economy recovers. As such, it may be a good time to buy, expand, or sell an arcade and entertainment center. However, many arcade and entertainment centers face intense competition from major players like Dave and Buster’s. To succeed, it is important to understand how to differentiate your arcade and entertainment center from competitors. You can start by learning how to value an arcade and entertainment center.
There are many factors to consider when valuing an arcade and entertainment center. The best way to learn how to value an arcade and entertainment center is to receive a business appraisal. As part of a business appraisal, a valuation expert determines the value of an arcade and entertainment center. In addition, they will help you understand the strengths and weaknesses of your arcade and entertainment center. This information can help you take steps to maximize the value of an arcade and entertainment center you are buying or selling.
Peak Business Valuation, business appraiser, works with many arcade and entertainment centers across the country. Peak is happy to provide you with a business appraisal and answer any questions you may have on how to value an arcade and entertainment center. Start now by scheduling a free consultation with Peak Business Valuation below!
How to Value an Arcade and Entertainment Center
Business appraisers may consider various valuation approaches when deciding how to value an arcade and entertainment center. The most popular approaches are the market approach and/or the income approach. Each valuation approach measures the value of an arcade and entertainment center using different metrics. During a business appraisal, a business appraiser determines the most applicable valuation approach for your arcade and entertainment center. This may include using a combination of valuation methods.
Valuing an Arcade and Entertainment Center Using the Market Approach
The market approach is a popular method for valuing arcades and entertainment centers. To understand the market approach, consider the real estate appraisal process. Real estate appraisers compare similar properties that recently sold in the area to determine the value of a home. When using the market approach, a valuation expert looks at similar businesses that recently sold. If the arcade and entertainment center is a private entity, the appraiser refers to private transaction databases.
Multiples for an Arcade and Entertainment Center
Valuation multiples are a defining characteristic of the market approach. Valuation multiples are financial ratios that assess an arcade and entertainment center’s value based on a financial metric. These metrics often include cash flow, sales, and earnings. To find the valuation multiples for an arcade and entertainment center, business appraisers use the proper NAICS or SIC code. Below, we highlight basic valuation multiples for an arcade and entertainment center.
SDE (Seller’s Discretionary Earnings) Multiples for an Arcade and Entertainment Center
- The SDE multiple assesses the value of an arcade and entertainment center based on its seller’s discretionary earnings. This multiple is common when valuing an arcade and entertainment center.
EBITDA Multiples for an Arcade and Entertainment Center
- EBITDA multiples measure an arcade and entertainment center’s earnings before interest, taxes, depreciation, and amortization. This indicates the return on investment (ROI) an arcade and entertainment center can expect to make.
REVENUE or SALES Multiples for an Arcade and Entertainment Center
- The REVENUE or SALES multiple measures the value of an arcade and entertainment center in relation to the amount of revenue it generates.
To learn more about how to value an arcade and entertainment center using valuation multiples, see Valuation Multiples for an Arcade and Entertainment Center.
Valuing an Arcade and Entertainment Center Using the Income Approach
The income approach is another common valuation approach for valuing an entertainment center or arcade. The income approach measures the value of an arcade and entertainment center according to its future earning potential. This approach also assesses the risks an investor may encounter when buying or selling an arcade and entertainment center. Business appraisers may consider the following risks when valuing an arcade and entertainment center.
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- Financial Performance. Many arcades and entertainment centers struggle to remain profitable. As such, arcades and entertainment centers need effective financial planning to succeed.
- Competition. The arcade and entertainment industry is very competitive. It is important for arcade and entertainment centers to find ways to differentiate from competitors.
- Equipment and Technology. Having high-quality equipment and technology is crucial for an arcade and entertainment center. This ensures customer satisfaction and increases the reputation of an arcade and entertainment center.
- Location. The location of an arcade and entertainment center has a significant impact on its value. With a prime location, arcade and entertainment centers can maximize sales revenue.
Methods to Value an Arcade and Entertainment Center Using the Income Approach
There are many variations of the income approach. When valuing an arcade and entertainment center, business appraisers often use the capitalization of cash flow method and the discounted cash flow method. We discuss how to value an arcade and entertainment center using these income approaches in the following paragraphs.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is typically best for arcade and entertainment centers with long and stable histories. When using this approach, the valuation expert determines an appropriate amount of income for one period of time. This income is then divided by a capitalization rate. The capitalization rate indicates a rate of return that an investor can expect. In addition, this method assesses any risks that the buyer may encounter.
Discounted Cash Flow Method
- The discounted cash flow method is ideal for arcade and entertainment centers with strong financial histories. In addition, this method may be useful for facilities that have reliable forecasts. The discounted cash flow method involves projecting future cash flows over a 3-5 year period. Then, a business appraiser uses a discount rate rather than a capitalization rate to account for the time value of money. The future cash flows are then discounted back to their present value using the discount rate. Keep in mind, the discounted cash flow method is less common since it relies on future cash flow estimates which can be unreliable.
Summary
There are various valuation methods a business appraiser considers when valuing an arcade and entertainment center. To know which method is most applicable to your arcade and entertainment center, receive a business appraisal. During a business appraisal, you will learn about the risks and advantages of your arcade and entertainment center. It will also determine the fair market value of an arcade or entertainment center. This information is important whether you are buying, growing, or selling an arcade and entertainment center.
Peak Business Valuation, business appraiser, is happy to help! We value arcade and entertainment centers on a regular basis. Peak Business Valuation can provide you with a business appraisal for an arcade and entertainment center. We can also discuss any questions you have about how to value an arcade and entertainment center. Start now by scheduling a free consultation with Peak below!
See also: Valuing an Arcade and Entertainment Complex, Value Drivers for an Arcade and Entertainment Complex, and Valuation Multiples for Arcades and Entertainment Complexes.
