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## Boarding Kennel Valuation – Part II

Once you’ve evaluated the estimated income of a boarding kennel operation, you’re ready to do some calculations to arrive at an accurate selling price. Keep in mind that there are experts in this field whose sole job is to calculate business values. They can complete a thorough analysis of a business and make an estimate as to the value of that business. Unfortunately, they can be prohibitively expensive…to the tune of $5,000. For a buyer, this can be very expensive. So, you’re forced to do your own calculations.

A few common sense calculations will go a long way. First, you must be able to purchase a business with 20% down (20% is considered the minimum down payment for commercial lending purposes). The business must be able to pay all expenses and mortgage payments and still provide you with a good income. Obviously, this is a broad generalization, so take it with a grain of salt. But, it should lead you in the right direction.

Second, you can evaluate the business based on the capitalization rate. It’s a way to measure how quickly an investment will pay for itself. In the boarding kennel business, the desired cap rate is usually around 12%. The formula is as follows. Business Value = Net Operating Income/Cap Rate. For example, if the annual net operating income is 100,000, the calculation would be as follows. 100,000 / .12 = $833,333. Cap rates may vary by region. And, you should definitely consult with professionals like your CPA, Realtor, attorney. I have oversimplified but my aim is just to point you in the right direction.

As we determined in the previous section, when looking for that perfect boarding kennel, look for income, income, income. If they’ve done their books above board, they should be able to show bank statements to show the money is being deposited. Of course, some operators pocket the cash without reporting it to the government. If this is the case, it puts you in a bind. You should calculate the estimated income as best you can. Keep in mind… if they can’t prove their income, they should be prepared to accept a lower offer.

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