Chapter 9
Using Rule-of-Thumb Valuations for Mom-and-Pop Businesses
In This Chapter
Why rules of thumb are good starting points but never endpoints
What general business valuation can tell you
Ten examples from Tom Westâs Business Reference Guide
The folks at Merriam-Webster Online have it right about the expression rule of thumb, which they define as âa general principle regarded as roughly correct but not intended to be scientifically accurate.â We like that definition. It means a rule of thumb is intended to be helpful and educational but shouldnât be the final word on a decision, particularly one that involves a lifeâs savings or the potential risk of tens or hundreds of thousands of dollarsâ worth of borrowed money.
This chapter deals with rules of thumb in business valuation and how people should use them. We have the privilege of introducing one of the leaders in researching and gathering business-valuation rules of thumb. Tom West is a founder, past president, and former executive director of the International Business Brokers Association (www.ibba.org), and for the past 18 years, heâs been the author of the Business Reference Guide, an annual bible on pricing hundreds of categories of independent businesses and name-brand franchises.
In this chapter, we feature rules of thumb on ten specific kinds of businesses from data from entries West compiled for the Business Reference Guide and listings he features on his subscription Web site, Business Brokerage ...
