When it comes to selling a home health care business, one of the hardest parts is often deciding on an accurate, unbiased value. The problem here is that you, as the business owner, will likely factor in things such as hard work, whereas a potential buyer won’t take this into account when examining the price of your home health care business for sale.
So, to make things easier all around, how do you accurately evaluate your home health care business? Which methods work the best? Here are a few of the tried and true methods that professionals use in today’s market.
How to Value A Home Health Care Business
Liquidation Value Method
At its most basic, the liquidation value is the overall amount a person would receive for selling their business assets in an open market. Unfortunately, assets like used beds and furniture do not create much of a value for owners.
Income Capitalization Method
Most applicable for larger businesses, this method is essentially the final result of dividing the expected business earnings by the capitalization rate. The idea behind this method is that the value is defined by the earnings and the capitalization rate is what’s used to relate the two factors.
“Rule of Thumb” Method
This method of valuation is a very general method. The valuation is done based on what the buyer can expect to generate if it continues to run and generate income the way it has been historically. This method is a good place to start but is too general to go off indefinitely, so it’s good to use another method alongside this one.
Discounted Cash Flow Method
This method is one of the most accurate methods. It uses business value estimation that is based around both businesses earning power and risk. It also considers the projected income stream of a business and is ideal for businesses that have high growth.
Market Comparison Method
The market comparison valuation method is used widely among both experts and individuals, as it is said to be a great reflection of what a business is truly worth. This method uses a direct comparison between the sales of one business and the sales of similar businesses to generate a relatively accurate value.
Multiple of Discretionary Earnings Method
Using a business’s earnings and 14 operational and financial performance and risk factors, the MDE method is best suited for small businesses. The method is based on income and lets owners in on the ways in which various factors affect the value of their business. It can be used as a value measurement and business assessment tool.
There are a number of methods to choose from when coming up with a value for your small home health care business. The method that works for you will depend on your goals, financial history, assets, and business growth rate. Some are better for small businesses and others for larger businesses, which is something to consider when deciding which method to use from the ones suggested above.