Valuations consist of data.
Factors to Discuss:
Growth or Decline
A business's market value depends on demonstrating a reliable track record of past performance aligning with growth potential. A decline can negatively impact the valuation. How the narrative, story, and presentation are handled can determine the success or failure of the valuation.
Gross Revenue
Gross sales play a role in valuation, instilling confidence and validating the concept. In certain sectors, businesses are frequently assessed based on gross sales. However, it's important to note that sales are not always the primary factor in determining the valuation multiple.
Net Earnings
Valuation is typically based on a multiple of earnings. As earnings increase, the market is generally willing to pay a higher multiple. Buyers often anticipate profits post-closing, but gauging this early on demands thorough diligence and clear communication, recognizing that it may not align with current operating costs.
Assets
In the healthcare industry, assets significantly influence either the multiple or the overall value. Obtaining and maintaining contracts can be challenging due to limitations. Valuation is impacted by constraints on payees and regulatory assets. Local experience is a critical factor.
Cost of Operations
The current Net Operating Income (NOI) affects the valuation. Knowing the potential cost differences in how a buyer and a seller operate the business provides a broader understanding of the valuation from both sides.
Net Operating Income (NOI) is the total revenue generated by a property or business, minus operating expenses, excluding debt service and income taxes.