If you’re wondering how to value your title agency, you’ve come to the right place. We recognize that people know the value of a business achieving their goals during a sale or purchase transaction or when passing it on to a partner, family member, or someone else. When you need a valuation performed, you’re attempting to gauge everything about the agency, including its assets, industry, earnings, debts, and losses, to develop a profile that accurately outlines its worth.
This guide supplies basic information about different valuation methods. To improve accuracy when determining the value of an acquisition, we recommend that you use and compare more than one method. After all, you need to know how to value your title agency to price it correctly and maintain leverage during negotiations.
Start With a Foundation: The Market Approach
Before looking at your agency’s internal numbers, we recommend doing some market research. With this approach, you determine the agency’s value based on similar businesses in your region and other factors, including physical location, ease of access, and local safety statistics. With some research, you can determine an average amount or range to use as a baseline comparison against the results of other methods.
Check the Assets: Adjusted Net Asset Method
With ANAM, you start with a list of the agency’s tangible and intangible assets and their combined value. These types of assets include the prices for all property, such as buildings and structures, office equipment, furniture, intellectual property investments, and inventory. With some items, you base the value on the amount you would ask for when selling an item after considering depreciation. Once you have this total, subtract liabilities, such as expenses, bills, interest, taxes, and loans.
Look at Cash: Discounted Cash Flow Method
Cash flow can help a buyer determine if your agency is successful. When a title agency has excellent cash flow, the owner has working capital to use. The agency’s value is based on future projections related to potential growth and discounts. Different factors must be considered when looking at the cash flow, such as outstanding debts or loans, current earnings, the percentage of earnings stability, and economic influencers like inflation.
Consider All Revenues: Capitalization of Earnings Method
You might also apply the amount you earn in a year to the total based on a percentage. For example, let’s say your title agency is worth, based on industry standards, two times your revenues. Experts recommend talking to a business appraiser or stockbroker to determine an exact amount to use when considering revenues with this method.
Eye to the Future: Earnings Multiplier Method
Lastly, given that many investors base value on profits, you might determine how to value your title agency by looking at your profits and applying a multiplier. With this method, you apply a multiplier times the net income to arrive at a value. This method is the “gold standard” in valuing title agencies. The issues are 1. what is the multiplier, and 2. what time period does one apply the multiplier? By way of example, if your net income were $1M in 2022, taking a five multiplier, the agency’s value is $5M. Multipliers are affected by many factors, including the age of the agency, efficiency, margins, employee tenure, and a whole host of other potential factors. While this method is the most prevalent, it is the most subjective and subject to manipulation pendant on the valuation goal.