Valuation Multiples for a Bakery
The bread production industry includes businesses that manufacture bread, cakes, muffins, croissants, and other bakery products. They then sell these products to retailers or directly to consumers. Within the United States, there are over 32,000 bakeries. Bakeries generate $48 billion in revenue. One of the primary factors impacting the value of a bakery is the cost of wheat. In addition, new food regulations and the increase in food production costs all impact the baking industry and the value of a bakery. If you are looking to buy or sell a bakery, understanding the value of a bakery is important. This article details how to value a bakery and provides average valuation multiples for a bakery.
Valuing a Bakery
As mentioned above, many factors impact the value of a bakery. This can include cost of goods, economic health, government regulations, among others. A business appraiser such as Peak Business Valuation, will consider these and more when valuing a bakery.
Understanding the value of a bakery is essential when buying or selling a bakery. A business appraisal will determine a fair market value and help you understand the strengths and weaknesses of the business.
When selling a bakery, a business appraisal will help determine a fair listing price. You don’t want to be leaving money on the table, but you also don’t want to list your business too high. Obtaining a business appraisal early can help you plan to maximize the value before selling.
If you are buying a bakery, a business appraisal can help you feel confident in your business purchase. It is a useful tool for negotiating a fair purchase price. It can also help you know where to focus your efforts to maximize the value of the business.
Knowing the value of your bakery can help you feel confident in your business transaction. A business appraisal report gives you an in-depth look at the bakery and determines its fair market value. A valuation expert determines the value of a bakery using various business valuation approaches. This can include the use of multiples for a bakery. Below is a brief overview of average valuation multiples for a bakery. For questions, or to obtain a business appraisal for a bakery reach out to Peak Business Valuation, business appraiser. Schedule your free consultation today!
Be sure to also check out How to Value a Bakery and Valuing a Bakery. As well as, Value Drivers for a Bakery.
Valuation Multiples for a Bakery
Below are average market multiples for a bakery, it includes EBITDA, REV, and SDE multiples for a bakery. Know that these numbers are only a guide. For specific information about a bakery you are buying or selling, schedule a free consultation. Peak Business Valuation, business appraiser, is happy to answer any questions you have about valuing a bakery.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Using valuation multiples for a bakery is a common method a valuation expert uses when determining the value of a bakery. A valuation multiple is like a ratio. A ratio compares two factors. One of the most common ratios or valuation multiples in business valuation is an SDE multiple. The SDE multiple for a bakery compares the seller’s discretionary earnings with the implied value of the bakery.
When using valuation multiples for a bakery, the valuation analyst will compare your bakery to similar bakeries that recently sold. This comparison helps to determine an appropriate market multiple for your bakery. The valuation expert will also use several business valuation approaches to determine a range of value for the bakery.
For instance, the seller’s discretionary earnings of a bakery are $205,000. Using a 2.72x SDE multiple implies the value of the bakery is $ 557,600. ($205,000 times 2.72x) Whereas, if a 2.40x SDE multiple is applicable, the bakery is worth approximately $492,000. ($205,000 times 2.40x)
Peak Business Valuation provides business appraisals for bakeries across the country. We love to work with individuals who are buying a bakery or selling a bakery. Understanding the value of your bakery is key. Get started with a business appraisal by scheduling your free consultation.
SDE Multiples for a Bakery
Average SDE Multiple range: 2.27x – 3.09x
According to our data, bakeries transact and have a fair market value between a 2.27x – 3.09x SDE multiple. To calculate the implied value of the bakery, take the seller’s discretionary earnings and multiply them by the applicable SDE multiple. See below for the calculation.
SDE X Multiple = Value of the Business
For example, a bakery owner makes $146,000 in seller’s discretionary earnings. The valuation expert determines a 3.02x SDE multiple is appropriate. Using the above calculation, the bakery has an implied value of $440,920.
$146,000 X 3.02x = $440,920
Seller’s discretionary earnings is a common cash flow multiple that small businesses transact on. A valuation expert often uses an SDE multiple to determine the value of a bakery. To determine the seller’s discretionary earnings, add back any expenses a new owner may not incur to the company’s operating profit. Common add-backs to a business valuation include a fair owner’s compensation, any personal expenses ran through the business, and any other non-recurring or non-related business expenses.
EBITDA Multiples for a Bakery
Average EBITDA Multiple range: 3.67x – 4.38x
According to Peak’s numbers, the average EBITDA multiple for a bakery is between a 3.46x – 4.37x. To derive the implied value of the bakery, apply the multiple to EBITDA. The calculation follows.
EBITDA X Multiple = Value of the Business
For instance, the EBITDA for a bakery is $136,000. It transacts at a 3.91x EBITDA multiple. Looking at the above calculation, the bakery is worth approximately $531,760.
$136,000 X 3.91x = $531,760
An EBITDA multiple measures the return on investment or ROI an investor can expect the business to make. A valuation expert may prefer using an EBITDA multiple because it uses normalized ratios. Normalized ratios allow the valuation expert to compare similar businesses and similar bakeries. It includes normalizing differences in capital structure, taxation, and fixed assets. Normalized ratios can more accurately represent the future earnings a buyer can expect from the business.
REV Multiples for a Bakery
Average REV Multiple range: 0.27x – 0.45x
According to our data, bakeries sell for an average of 0.40x – 0.69x revenue. A revenue multiple is less common to rely on, but the valuation expert will determine if it is applicable for your business transaction. To calculate, use the most recent 12-month period of revenue and multiply it by the applicable multiple for the bakery.
Revenue X Multiple = Value of the Business
A bakery generates $1,060,000 in revenue. Using a 0.59x REV multiple, the bakery has an implied value of $625,400.
$1,060,000 X 0.59x = $625,400
When valuing a bakery, the business appraiser will determine what valuation multiples are applicable for your bakery. Often small businesses transact on cash flow multiples – SDE and EBITDA multiples – rather than a REV multiple. This is because cash flow multiples consider expenses such as COGS, salaries, and rent, among other expenses.
Summary
When viewing average multiples for a bakery, keep in mind many factors impact the bakery and the multiple that is applicable. The business appraiser will analyze the bakery’s financials and key value drivers. They will also compare the bakery to similar bakeries in the country. This allows the business appraiser to determine applicable EBITDA, REV, and SDE multiples for the bakery. This can be complex, as such, Peak Business Valuation, business appraiser, would love to talk with you about valuing a bakery.
Peak Business Valuation, business appraiser, values bakeries on a regular basis. We would love to answer any questions you have about how to value a bakery. Whether you are buying, selling, or financing a bakery, a business valuation is a useful tool. Start your business valuation for a bakery today by scheduling a free consultation.
