BUSINESS VALUATION

The Valuation combines an evaluation of the physical assets of the Inn with a financial analysis of the performance and future potential of the business.  This Valuation is not an appraisal and other factors such as real estate value, the buyer/seller market and the property’s location may affect the price as opposed to the value.

 

The Valuation process first establishes an asset value based on a set amount per guest room, $60,000 per guest room.  In the next step we examine all other assets of the guest rooms and Inn, based on what we would normally expect to see in Inns similar to the subject property.  We then add, or subtract, in some cases, an amount where Assets might be larger and more valuable (or smaller and less valuable) than in a “normal” Inn.  In this going concern asset value we attempt to establish physical value for the Inn as a viable business.  Real estate value is different, and may be higher or lower, depending on convertibility to residential or other commercial uses. 

 

Next we analyze past business performance and from that develop financial projections.  We eliminate from the results owner compensation and non-cash expenses, producing the Inn’s net cash flow before debt, owner draw, depreciation and amortization.

In the next step of this business analysis, we compare expenses for the previous fiscal year with a Standard Cost Analysis, developed by using our database of Inns, the PAII Industry Study and other sources.  By inserting the income, average daily rate, and occupancy rate of a particular Inn into our business analysis spreadsheet, we calculate normal expenses expected from an Inn of that size, income, and occupancy level.

 

Finally, based on current performance, operating history and industry and market area trends, we project future business performance for the Inn.  Because the value of any business is its ability to produce a stream of income in the future, it is the projected future cash flow that we use to establish the overall business value in the Valuation. The Business Valuation is determined by combining the Asset Value with the projected business performance.  If cash flow provides a surplus, this adds value to the basic asset value.  If negative cash is produced, it would then be deducted from the asset value.

In this final phase of the Valuation, by analyzing the potential of the business to generate an excess earning capacity from the cash flow, we determine whether or not the business has a positive Business Activity Value. This Business Activity Value is then added to the Asset Value (or in the case of a negative Business Activity Value, subtracted from the Asset Value). This results in a determination of the Business Value of the Inn.

 

The final result is a multi-faceted report that combines a professional assessment of future numbers with well-established pro formas based on current industry standards. The final report is available to you within two to three weeks from the date of our onsite assessment.  If you decide to move forward with services following the Valuation, we would establish a follow up visit to discuss your options.

 

Fees for the Valuation generally range from $3,000 to $5,000 depending on the size and scope of the property.