Updated: Mar 4, 2022
Thanks for joining us today as we explore another aspect of selling your business.
In this Blog we are going to take a quick look at answering the question that is one of the most often asked questions by someone who wants to sell their business. What is my business worth? There are all sort of companies out there willing to do a formal valuation of your business for what seems to be most of the time a fairly sizable fee. At the end of the day, your business is worth exactly what someone is willing to pay for it. The challenge becomes getting the opportunity in front of the right people.
Businesses are valued in several different ways and we simply don’t have time to go through all of them so let's cover those that apply to the majority of family owned or privately held businesses in the middle market with revenue between $2M - $40M.
Most often profitable businesses are valued based on a multitude of EBITDA - or your true discretionary cash flow. Check out our video or blog on what the heck is EBITDA?
If your company has under $5M in EBITDA and is not in an outlier type of business such as business service type industry like a CPA firm or Software as a Service company, you can typically figure that it is worth in the range of 2.5 - 4 X EBITDA. We typically can research a particular industry and come up with a range of value to help set expectations.
This range is greatly influenced by what the sales and profit margin trends are over the past 3-4 years along with type of industry and other specifics like concentration of customers. For instance if a large portion of your revenue comes from recurring revenue you may be able to get on the higher end of the multiple simply because recurring revenue is a highly sought after commodity.
The type of buyer also influences the multiple of EBITDA. A strategic buyer who is looking for tuck ins or add ons to their platform company may pay a higher multiple because they know can cut some of the administrative expenses due to already having those back office functions in place on their other company.
There are so many factors that influence the sales price but ultimately when we take a company to market, the market speaks as offers or Indications of Interest start coming in.