I recently was asked to evaluate a few locksmiths in Renton and that got me thinking about how to value a locksmith business. There are a lot of choices to be made when assessing the value of a business, but the objective is clear: find an accurate estimate that will maximize return on your investment. The type of business you’re looking at, though, can have a large effect on what methods you might use to acquire said estimate.
A frequent starting place is the valuation of the business’s assets. There are typically two types of locksmith businesses: mobile and brick-and-mortar. The mobile business will have fewer assets compared to the brick-and-mortar locksmith; however, in this case, assets can be a misleading figure. A business of sufficient scale will have a large number of assets; however, this does not guarantee that the business will make you money without selling off assets.
One can also determine the value based on valuations of similar locksmith businesses – however, it can be difficult to determine the “similarity” of two seemingly like businesses.
In the case of a locksmith, which is typically a small business, you’ll likely find that the most assured method of evaluation is to first examine the company’s books, determine the annual profits (if you don’t know how to do this, you should learn before attempting to evaluate), and multiply by a standard coefficient. A common technique is to divide the profits by the current relatively solid interest rate of Treasury bills. This technique tends to provide reliable and accurate estimates and is widely used.
It’s important to remember, though, that businesses have no inherent value. Businesses are worth what they’re worth to you and the business owner– if you’ve had a childhood dream of owning a locksmith company, you’ll likely be willing to pay more than any “market value”; conversely, if the business owner had always dreamed of owning his own locksmith company, and especially if he’s put years of work into it, he may not accept an otherwise fair evaluation.