Valuation in the Volatile World

Rent Roll buyers are buying the future income stream or profits of a business.

Historic results are no guarantee of future performance. Profit & Loss statements, Balance Sheets will show past profits and trends but cannot tell you what will happen next year.

Averaging figures for the last 3 or 4 years can be dangerously misleading, particularly if the business is experiencing a decline in the present downturn. The most recent results are the best indicator of the businesses’ health and future profitability. The buyer must make a subjective judgement as to what the future really holds.

Businesses that consistently monitor their cash flow will be in a better position to take advantage of when the economy will rebound.  Eventually businesses will emerge leaner and stronger from the experience.

The challenge for the buyer is to predict the future performance of a rent roll that is for sale; how much the downturn will impact results, and how prices will be supported by the increased supply of buyers looking to replace decreased sales income with rent roll income.

Business valuation is never a precise science. All valuations are opinions and the only true test of value is an arms-length sale in the market-place after a thorough marketing program.