Meet SDC: A Key To The Value Of Your Agency

Seller's Discretionary Cash (SDC) is the key number used when determining the value of tour and travel industry related companies, reports Bob Sweeney, president of Innovative Travel Acquisitions Inc., a major broker. Buyers use SDC as a key indication of a firm’s value in the market.

“If you’re considering the sale of your business in the near future, buyers want to see all the benefits of owning the business,” Sweeney says. “It’s important to have an objective idea of what the true worth of your business is. This process is known as recasting.”

As an example, a business that produces revenues of $1 million in gross profit might show a net income of about $100,000 on tax returns. “Buyers look for discretionary spending on items other than fixed costs such as rent or payroll,” Sweeney says. “An example of sellers discretionary spending is life, disability and health insurance, vehicle, vehicle maintenance, cell phones, travel, meals, cleaning services, non working family member on payroll, conferences, etc. For this example, those items could amount to say $25K.”

Excess owner’s salary counts, too. “Does the business pay the owner a salary above scale verses hiring a manager?” Sweeney aks. “If so, add the difference. If the owner is absent then add back the whole amount. For this example let’s use $25K for a total of $150K SDC. On this size of an operation the business would be worth around $300K.”

Sweeney says that, when agents have their company appraised, it is best to provide CPA reviewed monthly income statements and balance sheets for the previous three years prior to listing.

“In today’s market, a small travel and tour industry related company usually commands about two times SDC,” Sweeney says. “Mid-sized travel and tour industry related companies usually command about three times SDC. Larger travel and tour industry related companies usually command about four times SDC. In other words, the higher the profit the more the multiple expands.”

Sweeney reports that his firm currently has 25 businesses for sale on its websites plus many not offered online. Visit www.TravelBusinessBroker.com.