What Is the Current Value of Your Travel- or
|2020 is behind us…Thank Goodness. During this time of year, one of the top requests from you is how to put a value on your travel business. This also is the time to look for new opportunities—and we see great ones ahead for you.
Some of those opportunities could involve expanding or capitalizing on your long-standing business. To make that happen, we consulted our go-to resource, Bob Sweeney, an expert in the areas of travel- and tour-related mergers and acquisitions. Here’s what he had to say:
The best advice is to start preparing now and do not wait until the last minute because selling requires careful planning. This includes cleaning up and organizing financial and tax records, updating old operating systems, and perhaps even ramping up marketing to boost sales and command a higher asking price.
Sellers Discretionary Cash (SDC) is the key number we utilize when determining the value of tour- and travel-industry related companies. If you’re considering the sale of your business in the near future, buyers will want to see all the benefits of owning the business. It’s important to have an objective idea of the true worth of your business. This process is known as recasting. In the example below, the income statement and tax returns might show $100K in earnings, but $150K is the true recasted total SDC.
As an example, a business that produces revenues of one million in gross profit might show a net income of about $100K on tax returns. Buyers look for discretionary spending on items other than fixed costs, such as rent or payroll. Examples of sellers’ discretionary spending are life, disability, and health insurance, vehicle, vehicle maintenance, cell phones, travel, meals, cleaning services, non-working family members on payroll, conferences, etc. For this example, those items could amount to say $25K.
Excess owner’s salary counts too. Does the business pay the owner a salary above scale versus hiring a manager? If so, add the difference. If the owner is absent, then add back the whole amount. For this example, let’s use $25K for a total of $150K SDC. On this size of an operation, the business would be worth around $300K.
When having your company appraised, it is best to provide CPA-reviewed monthly income statements and balance sheets for the previous three years prior to listing. In today’s market, a small travel and tour industry related company usually commands about two times SDC. Mid-sized travel- and tour-industry related companies usually command about three times SDC. Larger travel- and tour-industry related companies usually command about four times SDC. In other words, the higher the profit, the more the multiple expands.
–Bob Sweeney, President, Innovative Travel Acquisitions, Inc. www.tvlacq.com
If your head is spinning like ours is, you’re not alone. These are complex, strategic, and emotional decisions that will affect the growth of your company. Be sure to attend the free webinar with Bob Sweeney on January 13 where he will deep dive into more of the how-tos about mergers and acquisitions.
This time of year, we also get requests for tax tips. In our Premium Access Lounge, you will find power sessions—by tax experts—containing valuable information that you can apply prior to meeting with your tax consultant. Access the Premium Lounge today.
P.S. You are invited to come and Explore the World with Us with our FREE “On the Road Again” series today, focusing on Cancun and Costa Rica. Learn more about these and other destinations in Exploring the World, THE ultimate online destination resource for today’s travel professional.