Magic multipliers rival the mushrooms

The benefit of being snowed in by client business valuations over Christmas and into January is that it gives one time to think about (mostly) only one discipline of one’s job – valuations. With so many different types of businesses at one time, a bit of research is necessary to put things in perspective.

And how enlightening! The number of business brokers out there relying solely on standard valuation multipliers is scary. But at the same time, the number of careless statements issued by all sorts of people on the interwebs is downright dangerous.

The most frightening of all is the guy who tells us that a dry cleaning business can be valued at 7,5 times its gross sales turnover. To put that in perspective, ABSA is currently trading at about 12 or 13 times its net earnings, after all its expenses and costs have been deducted from its own turnover. So I am sure that his 7,5X gross turnover for a dry cleaner is a slip of the tongue, and I explain as much in the video, below; but for heavens sake, take the trouble to make the correction! There are people out there who will grasp at that straw and make life defining decisions about their retirements from such mistakes. These are mistakes which are very difficult to recover from once the die is cast.

I produced the video with a bit of a chest infection, so it has raspiness to it, but I think it does a reasonable job of explaining why DIY, multiples – based valuations are so dangerous, and how anecdotal discussions with people with limited experience in valuing businesses can do so much damage.

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