What's It Worth?: Business Valuation - Tips For A Faster Sale

There are many misconceptions about how to go about valuing your business. In general, most business owners have a value in their mind that is usually several times more than the actual value a sophisticated, competent buyer ultimately pays. The process of getting from perceived value to sale price can be very, very challenging. Here is some helpful information to get you to a successful valuation and faster sale of your business.

Business valuation

Earnings bases

Value enhancement

Typical value multiples

Price to revenue: 50% to 80%. Price to EBITDA: 2x to 4x. The price-to-sales multipliers had a wider variance, primarily based on EBITDA: the higher the EBITDA, the higher the multiplier. The EBITDA multiplier had a relatively tight range, with the median average multiplier being approximately 3x. I would start with a 3x multiplier of EBITDA, and increase/decrease this by 5 percent based on the risk factors above. If all 5 factors above are positive, you could possibly add 25 percent to the 3x multiplier, which calculates to 3.75x. Negative risk factors will detract value.

Valuation checklist

The following indicates what the business evaluator and/or potential buyer will need to complete their valuation and/or purchase. Other information may be needed, depending on the project.

Rod Bristol is executive vice president at Profit Mastery. Learn more at www.profitmastery.net, 800-488-3520 x14 or write to bristol@profitmastery.net.

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