I have a client who is trying to figure out a value for a division of government contracting business. The tricky thing is that the business has expiring contracts which will be declining in revenue in the future. I’m not sure how to handle this in BizEquity.
This is a difficult situation for sure. The best route would be to enter the "expected" average performance in the 2018 column for the next couple of years based on the loss of contracts. A hypothetical buyer would only be willing to pay for what is expected to be retained and in a case where the loss in business is predictable, the buyer may even require an "earnout" whereby the actual final price is dependent on the actual final future performance. You can type in "earnout for purchase of business" in Google and learn more about this facet of dealmaking if you are not familiar. No matter what, the value will be based largely on the expected future discretionary earnings under this type of scenario.