Business Valuation

Business Valuation ## Overview of Business Brokerage in California Business brokerage is a specialized field within California real estate. When a business sale involves real property (owned or leased), a California real estate license is required. When a business sale involves the sale of stock (equity interests in a corporation), a securities license may also be required. Business brokers operate at the intersection of real estate, finance, and business law — and must understand valuation methods that differ substantially from real property appraisal. --- ## Why Business Valuation Differs from Real Property Valuation Real property valuation uses market comparables, the income approach (cap rates), and the cost approach. Business valuation requires different frameworks because a business's value is: - Derived from earning power — the ability to generate future cash flow - Dependent on management and personnel — losing a key person can destroy value - Tied to intangible assets — brand, customer relationships, proprietary systems - Affected by industry dynamics — growth industries command premium multiples; declining industries trade at discounts - Sensitive to transferability — will customers stay with the new owner? A building can be valued without knowing who operates inside it. A business cannot. --- ## Income Approach: EBITDA and SDE The income approach is the dominant method for business valuation. ### EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) Used for: - Larger businesses (revenues $1M+) - Businesses with institutional buyers or PE firms - Businesses with professional management teams - Businesses where the owner does not work in the company Formula: EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization Multiple applied: Industry-specific; typically 3–8× EBITDA for small-to-mid-market businesses. Technology…