Valuation Multiples for Wholesale Trade
The wholesale trade industry includes business that distribute goods from a variety of other industries. Wholesale trade businesses typically do not transform or produce products. As such, wholesale trade companies include distribution companies. Major factors impacting this industry include the price of commodities, supply chain efficiencies and deficiencies, as well as rising costs. In the United States, there are over 700,000 wholesale trade companies. The wholesale trade/distribution industry does more than $11 trillion in revenue. As such, there are hundreds of transactions of wholesale trade companies each year. If you are looking to buy or sell a wholesale trade business, obtaining a business valuation for the wholesale trade business is key. Part of the valuation process for a wholesale trade business includes using valuation multiples for wholesale trade.
Valuing a Wholesale Trade Business
When valuing a wholesale trade business, a valuation expert considers many factors. Some of these factors we mentioned above including costs of products and distribution. The business appraiser will analyze the financials of the wholesale trade business and key value drivers. They will also compare the operations of the wholesale trade business with similar wholesale traders. Peak Business Valuation, business appraiser, will then use a variety of valuation methods to determine the value of the wholesale trade business.
Knowing the value of a wholesale trade business is important whether you are buying or selling a wholesale trade company. A business appraisal will determine the fair market value and help the individual buying or selling the business understand the business’s strengths and weaknesses. If you plan on selling a wholesale trade business, a business appraisal for a wholesale trade company can help you understand how to maximize the value. A business appraisal is also helpful when determining the listing price for the wholesale trade business.
If you plan on buying a wholesale trade business, a business appraisal can help you feel confident in your business purchase. The business appraisal will help you understand a fair purchase price and how to negotiate the purchase price.
At Peak Business Valuation, business appraiser, we work with many wholesale trade companies across the nation. We are happy to answer any questions you have about valuing a wholesale trade business. Schedule a free consultation today!
Valuation Multiples for Wholesale Trade
Below are average valuation multiples for wholesale trade. The below diagram provides average REV, SDE, and EBITDA multiples for a wholesale trade company. These numbers are only a guide. For specific information about a wholesale trade you are buying or selling, schedule a free consultation with Peak Business Valuation, business appraiser.
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.
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What is a Valuation Multiple?
A valuation expert commonly uses valuation multiples for wholesale trade when determining the value of a wholesale trade business. A valuation multiple is similar to a ratio in that it compares two factors. When using valuation multiples for wholesale trade, the business appraiser at Peak Business Valuation will compare your wholesale trade business to a similar wholesale trade business that recently sold. This helps the appraiser determine an appropriate market multiple for your wholesale trade business. The valuation expert will use several business valuation approaches to determine a range of value for the wholesale trade business.
A common valuation multiple is the SDE multiple. An SDE multiple for a wholesale trade business compares the seller’s discretionary earnings with the implied value. For example, the seller’s discretionary earnings of a wholesale trade business are $620,000. When using a 2.87x SDE multiple, the implied value of the wholesale trade company is $1,779,400. ($620,000 times 2.87x) Whereas, if a 3.58x multiple is most applicable, the implied value of the wholesale trade business is $2,219,600. ($620,000 times 3.58x)
Peak Business Valuation provides business appraisals for wholesale trade companies on a regular business. We frequently work with individuals who are buying or selling a wholesale trade business. Get started with your business valuation for a wholesale trade company by scheduling a free consultation below!
SDE Multiples for a Wholesale Trade Business
Average SDE Multiple range: 2.68x 3.75x
In Peak’s data, wholesale trade businesses sell between a 2.68x – 3.75x SDE multiple. To determine the implied value of the wholesale trade business, use seller’s discretionary earnings and multiply it by the applicable SDE multiple. The calculation follows.
SDE X Multiple = Value of the Business
For instance, a wholesale trade business makes $430,000 in seller’s discretionary earnings. Using a 3.17x, the business appraiser determines the implied value of the wholesale trade business is approximately $1,363,100.
$430,000 X 3.17x = $1,363,100
The seller’s discretionary earnings multiple is common to use when valuing a wholesale trade company. This is because it includes common add-backs in the business valuation. Common add-backs can include any personal expenses ran through the business, a fair owner’s salary, and any other non-related or non-recurring business expenses. Take these add-backs and add them to the company’s operating profit to calculate the seller’s discretionary earnings.
EBITDA Multiples for a Wholesale Trade Company
Average EBITDA Multiple range: 3.62x – 4.43x
According to Peak’s data, the average EBITDA multiples for a wholesale trade company range between 3.62x – 4.43x. To calculate the implied value of the wholesale trade company, take EBITDA and multiply it by the applicable multiple. The calculation is below.
EBITDA X Multiple = Value of the Business
For example, the EBITDA for a wholesale trade company is $514,000. It transacts on a 3.98x EBITDA multiple. Using the above calculation, the approximate value of the wholesale trade business is $2,045,720.
$514,000 X 3.98x = $2,045,720
The EBITDA multiples measures the ROI or return on investment that an individual expects to make from the wholesale trade business. The valuation expert will determine if this multiple is applicable to your business transaction. This multiple may be preferred because it include normalized ratios. Normalized ratios allow the valuation expert to compare similar textile businesses. This is because it normalizes differences in capital structure, taxation, and fixed assets. In addition, normalized ratios can more accurately reflect the future earnings a buyer expects from the wholesale trade business.
REV Multiples for Wholesale Trade
Average REV Multiple range: 0.33x – 0.72x
Last, according to our data, wholesale trade businesses sell on average between 0.33x – 0.72x of revenue. The revenue multiple for a wholesale trade company is less common to rely on, but in some instances may be applicable for your wholesale trade company. To determine the implied value, take the most recent 12-month period of revenue and multiply it by the applicable REV multiple. See the calculation below.
Revenue X Multiple = Value of the Business
For example, a wholesale trade business makes $4 million in revenue. Using a 0.56x REV multiple implied the value of the wholesale trade business is approximately $ 2,240,000.
$4,000,000 X 0.56x = $2,240,000
When valuing a wholesale trade company, a business appraiser at Peak Business Valuation will determine what valuation multiples are most applicable for your wholesale trade company. Often small businesses transact on cash flow multiples – SDE and EBITDA multiples. This is because cash flow multiples consider expenses such as COGS, salaries, and rent, among other expenses.
Summary
When looking at valuation multiples for wholesale trade, know that many factors impact them. A business appraiser at Peak Business Valuation will analyze your wholesale trade business, company financial statements, and other key value drivers. They will then compare your wholesale trade business to similar wholesale trade companies. Using several business valuation approaches they will then determine a fair market value for the wholesale trade business. For more information see Valuing a Wholesale Trade Business. As well as Value Drivers for Wholesale Trade and How to Value a Wholesale Trade.
As a business appraiser, Peak Business Valuation values wholesale trades businesses regularly. We are happy to provide a business appraisal for a wholesale trade company you are buying or selling. We are also happy to answer any questions you have about valuing a wholesale trade business or appropriate market multiples for wholesale trade. Schedule your free consultation by clicking the link below.
