Issue link: http://psai.uberflip.com/i/1406432
PSAI Association Insight, September 1, 2021 I 15 Valuing A Portable Sanitation Business By Karleen Kos, PSAI Executive Director The portable sanitation industry offers a wonderful opportunity for entrepreneurs who aren't afraid of getting up early, working hard, and getting dirty to make a great living. To get the most out of the money you are making, there are likely to be several situations throughout the span of your career when you will want to know the true or fair market value of your own firm or of another entity. Buying an existing business, selling a business, merging with another business, taking on private investors, or planning for business succession are a few of these instances. When you are in one of these situations, you will want to determine exactly how much the business in question is worth. Stated another way, you need to know how much it can bring on the open market, otherwise known as the "fair market value" or FMV. It is important to remember that this amount may not be the same as the value on your books or that you could get from an appraiser. Both the book value and the appraised value are somewhat theoretical. FMV is, simply put, the amount of money you could actually get—or that it would actually cost—to make a transaction happen. This assumes: • Neither the buyer nor the seller is under the compulsion to make a deal • Both parties are free to act in their own best interest • Both parties have reasonable knowledge of relevant facts concerning the business. But what are those relevant facts and how can you go about assessing them to achieve the fair market value? Are they the same for portable sanitation companies as for other businesses? This is a question the PSAI gets often from people considering whether to enter or exit our industry. The short answer is "it depends." Let's take a look at some steps you can take in valuing a portable sanitation business. Begin with the basics. At its most basic level, your company is worth what some- one will pay for it. Of course, they want to pay the least you will accept, and you want to receive the most they will offer. So the point of the valuing exercise is to come up with a number that informs your approach to the negotiation. Even if you know your key figures, such as annual sales, gross revenue and profit- ability, and you can estimate its growth potential backed, at least in part, by hard facts and data rather than merely your own ambitions, you still may have many missing spots on your spreadsheet when it comes to knowing that business' true value. Now what? You can simplify and hire a professional business appraiser to conduct and evaluation of your business. You will pay for this service, but you will also get expertise that you may not have yourself. Sometimes portable sanitation company owners call the PSAI to "gut check" results they have already received from a professional appraiser. We can provide some general guidance, but these professionals are good at what they do. Make sure you use someone who is a (continued on page 16)