Whether you want to sell now, or are just beginning your process, the ValueBuilder Score is the best way to get started. The questionnaire only takes a few minutes.
Multiple Of Your Past Earnings
Whew? What does all that mean? Simple. Your business is worth a multiple of your past earnings if a buyer can project those earnings will be maintained after the purchase.
What Is The Multiple?
Well first we must discuss what you want to multiply? Net income? EBITDA? Owner’s benefit? In small business sales (businesses earning less than 1 million dollars), we use owner’s benefit. Owner’s benefit equals the net income, plus depreciation, interest, and the owner’s salary and fringe benefits. In other words, all the income available to ONE owner if the company was debt free. EBITDA is used by larger businesses and includes normalized salary and benefit package for an executive to operate your business.
Okay, Now The Multiples.
Well the multiples of owner benefit can run from less than one to about three. If your company is larger and your EBITDA is near or above one million, the multiples can run from four to six. Is this set in stone? NO! How do you know which multiple would be used for your business? Well, the multiple will rise along with the size, quality, and verifiability of your owners benefit. Bad books, dim future, negative growth and little profits equal a low multiple. Excellent books, bright future, excellent growth you will garner a high multiple.
Can all that mean nothing? Yes!
Buyers determine a business’ eventual sale price. Not valuation experts. That is why no one can tell you exactly what your business is worth. Not your banker, CPA, lawyer, broker, or mother-in-law. The only individual that will tell you what it is worth is the eventual buyer – and that will be a subjective evaluation. The same business will be valued differently by every buyer.