How to Value a Floral Business
Floral businesses sell various types of flower arrangements and potted plants. According to IBIS World, there are about 33,000 floral businesses throughout the United States. These businesses generate approximately $1.8 billion in revenue per year. Moving forward, the floral industry will benefit from a rise in e-commerce sales as well as an increase in consumer spending. As such, now may be an ideal time to buy, grow, or sell a floral business. If you are looking to buy, grow, or sell a floral business, it is important to understand how to value a floral business.
The best way to learn how to value a floral business is to obtain a business valuation. As part of a business valuation, a business appraiser considers the strengths and weaknesses of your floral business. The valuation expert can also calculate the fair market value of a floral business using various business valuation methods. This information is vital if you are looking to increase the value of your floral business.
Peak Business Valuation is a professional business appraiser. At Peak, we value floral businesses on a regular basis. We are happy to provide you with a business valuation for a floral business! Additionally, Peak can discuss any questions you may have on how to value a floral business. Schedule your free consultation with Peak Business Valuation below!
How to Value a Floral Business
There are several business valuation methods to consider when valuing a floral business. At Peak Business Valuation, our business appraisers typically rely on the market approach and/or the income approach. Both approaches are effective, however, each method uses a different basis of valuation. As part of a business valuation, the valuation expert determines the most suitable valuation approach for your floral business. This can include using a combination of valuation approaches for valuing a floral business.
Valuing a Floral Business Using the Market Approach
The market approach is a common method for valuing floral businesses. This valuation approach is similar to the real estate appraisal process. When valuing a house, real estate appraisers assess similar properties that were recently sold in the area. This helps them understand the fair market value of the house. When valuing a floral business with the market approach, a business appraiser compares similar businesses that recently sold. If the business is private, the expert refers to private transaction databases to gather relevant information.
Multiples for a Floral Business
When using the market approach to value a floral business, valuation experts work with valuation multiples. These are ratios that compare the value of a floral business to financial metrics like cash flow, sales, or earnings. To find the valuation multiples for a floral business, a business appraiser applies the appropriate NAICS or SIC code. Below, we discuss how to value a floral business using SDE, EBITDA, or REV multiples.
SDE (Seller’s Discretionary Earnings) Multiples for a Floral Business
- SDE multiples measure the value of a floral business in relation to its seller’s discretionary earnings. This is a common valuation multiple in small business valuation.
EBITDA Multiples for a Floral Business
- EBITDA multiples represent a floral business’s earnings before interest, taxes, depreciation, and amortization. This helps the business appraiser understand the return on investment (ROI) a floral business can generate.
REVENUE or SALES Multiples for a Floral Business
- The REVENUE or SALES multiple measures a floral business’s value based on the total amount of revenue or sales it generates.
To learn more about how to value a floral business using the market approach, see Valuation Multiples for a Floral Shop.
Valuing a Floral Business Using the Income Approach
The income approach is another common valuation approach for floral businesses. This method assesses the future cash flow potential of a floral business. In addition, the income approach considers the risks associated with buying, growing, or selling a floral business. We highlight a few of these risks below.
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- Supplier Relationships: Floral businesses purchase goods from flower farms and wholesalers. By developing strong supplier relationships, floral businesses can increase their value.
- Financial Performance: Operating a floral business can come with high expenses. As such, it is crucial to have strong financial planning and budgeting skills in a floral business.
- Competition: The floral industry is very fragmented and competitive. To succeed, floral businesses need to create diverse revenue streams to stand out from the competition.
- Skilled Staff: Creating flower arrangements can be tedious. By hiring experienced florists, you can increase efficiency and quality at your floral business.
Methods to Value a Floral Business Using the Income Approach
There are several variations of the income approach. The most common methods are the capitalization of cash flow method and the discounted cash flow method. In the following paragraphs, we discuss how to value a floral business with the capitalization of cash flow method and/or the discounted cash flow method.
Capitalization of Cash Flow Method
The capitalization of cash flow method is ideal for floral businesses with long and stable histories. When valuing a floral business with the capitalization of cash flow method, business appraisers determine an appropriate amount of cash flow for one period. Then, the expert applies a capitalization rate to the cash flow which reflects the rate of return investors can expect from the floral business. In addition, the capitalization of cash flow method assesses the risks associated with the floral business.
Discounted Cash Flow Method
The discounted cash flow method involves projecting future earnings over a 3-5-year period. The earnings are then divided by a discount rate rather than a capitalization rate. The discounted cash flow method measures the value of future cash flows by taking the time value of money into account. This method is best for floral businesses with strong financial histories and/or reliable forecasts. Please note that the discounted cash flow method is less common since it is limited to future cash flow estimates which can be inaccurate.
Summary
If you are looking to buy, grow, or sell a floral business, it is beneficial to learn how to value a floral business. When valuing a floral business, valuation experts consider various valuation approaches. To understand which method is best for your floral business, obtain a business valuation. During a business valuation, you will learn the fair market value of a floral business. In addition, the business appraiser will highlight the risks and opportunities of your floral business. This information can help you take the next steps in maximizing the value of a floral business.
Peak Business Valuation, business appraiser, is here to help! We work with many floral businesses across the country. As such, we are happy to provide you with a business valuation for a floral business. Additionally, Peak can answer any inquiries you may have on valuing a floral business. Schedule a free consultation today to get started!
See also Valuing a Floral Business, Valuation Multiples for a Floral Shop, and Value Drivers for a Floral Business.
