How to Value an Event Planning Business
Event planning businesses primarily organize weddings, dinners, parties, and other events for various entities. The event planning industry has struggled over the past few years. This is due to factors such as inflation, rising input costs, and declining marriage rates. Moving forward, we can expect a slight improvement. However, competition remains strong in the industry. Despite these conditions, success is still attainable whether you are buying, growing, or selling an event planning business. To understand how to build a successful event-planning business, it is beneficial to learn how to value an event planning business.
The best way to learn about valuing an event planning business is to receive a business valuation. This can help you know the fair market value of an event planning business and highlights the strengths and weaknesses of the event planning business. As a business appraiser, Peak Business Valuation is here to help you! We work with individuals looking to buy or sell an event planning business on a regular basis. Peak Business Valuation is happy to provide you with a business valuation for an event planning business. We can also answer any questions you may have about how to value an event planning business. Start today by scheduling a free consultation with Peak below!
How to Value an Event Planning Business
There are several valuation approaches to consider when determining how to value an event planning business. Peak Business Valuation often uses the market approach and/or the income approach when valuing an event planning business. The approach a valuation analyst uses depends on various factors. They will use their expertise to determine the best method for your event planning business. This often involves a combination of valuation approaches. In this article, we highlight the market approach and the income approach for valuing an event planning business.
Valuing an Event Planning Business Using the Market Approach
When valuing an event planning business, valuation analysts often use the market approach. The market approach is similar to how real estate appraisers value a property. The real estate appraiser considers comparable houses that recently sold on the market. Doing so helps them determine an accurate value of the property. With the market approach, the business appraiser compares your event planning business to similar businesses that recently sold. If it is a private business, the expert gathers information from private transaction databases.
Multiples for an Event Planning Business
When using the market approach, business appraisers rely on valuation multiples for an event planning business. Multiples are financial ratios that measure an event planning business’s value based on metrics such as cash flow, earnings, or sales. To find the valuation multiples for an event planning business, business appraisers use the applicable NAICS or SIC code. Below, we highlight how to value an event planning business using SDE, EBITDA, and REV multiples for an event planning business.
SDE (Seller’s Discretionary Earnings) Multiples for an Event Planning Business
- SDE multiples determine the value of an event planning business in relation to its seller’s discretionary earnings. The SDE multiple is popular when valuing an event planning business.
EBITDA Multiples for an Event Planning Business
- EBITDA multiples help calculate the return on investment an event planning business can expect.
REVENUE or SALES Multiples for an Event Planning Business
- REVENUE multiples value an event planning business based on the revenue or sales it generates. This multiple is less common when valuing an event planning business.
To learn more about valuation multiples, see Valuation Multiples for Event Planning.
Valuing an Event Planning Business Using the Income Approach
Another common method for valuing an event planning business is the income approach. This valuation approach assesses the risks of an event planning business. Below, we list a few common risks associated with buying or selling an event planning business. A business appraiser analyzes these risks as part of the valuation process.
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- Financial Performance: The event planning industry has seen revenue and profit decline in recent years. To succeed, it is important to have strong financial planning and budgeting.
- Competition: The event planning industry is extremely fragmented. As such, it is vital for event planning businesses to differentiate from competitors.
- Key Personnel: Employees at an event planning business should receive extensive training. High-quality services can strengthen the reputation of an event planning business.
- Seasonality: Demand for event planning services can fluctuate throughout the year. Event planning businesses need to find ways to ensure steady business success.
Methods to Value an Event Planning Business Using the Income Approach
There are several variations of the income approach. When valuing an event planning business, business appraisers often use the capitalization of cash flow method and the discounted cash flow method. Both of these methods assess the cash flow potential of an event planning business. Below, we discuss how to value an event planning business using the capitalization of cash flow method and the discounted cash flow method.
Capitalization of Cash Flow Method
- The capitalization of cash flow method is best for event planning businesses with long and stable histories. When using this approach, the valuation analyst determines an appropriate amount of cash flow for one period. This cash flow is then divided by a capitalization rate. The capitalization rate reflects a rate of return that an investor can expect. In addition, this method assesses any risks that the buyer may encounter. We discuss a few common risks associated with event planning businesses above.
Discounted Cash Flow Method
- The discounted cash flow method is most suitable for event planning businesses with strong financial histories. In addition, this method may be helpful for event planning businesses that have reliable forecasts. The discounted cash flow method involves projecting future cash flows over a 3-5 year period. A business appraiser then uses a discount rate rather than a capitalization rate to account for the time value of money. The future cash flows are discounted back to their present value using the discount rate. Keep in mind, the discounted cash flow method is less common since it relies on future cash flow estimates which can be inaccurate.
Summary
When valuing an event planning business, a valuation expert may use various valuation approaches. Each approach measures the value of an event planning business using different metrics. To know which method is best for your event planning business, receive a business valuation for an event planning business. During a business valuation, a valuation analyst can help you understand the strengths and weaknesses of an event planning business. In addition, they will determine the fair market value of an event planning business you are buying or selling.
Peak Business Valuation is happy to help! Peak works with many event-planning businesses across the country. We can provide you with a business valuation and answer any questions you have on how to value an event planning business. Start now by scheduling a free consultation with Peak Business Valuation!
For more information see Valuing Event Planning Businesses, Value Drivers for an Event Planning Business, and Valuation Multiples for Event Planning.
