Do You Know The Value Of Your Business?

💥 DO YOU KNOW THE VALUE OF YOUR BUSINESS?? 💥

#3 in the list of 5 things you should know before deciding to sell your business.

👉 This seems like a fairly fundamental question, but in reality the value of your business is dependent on a number of factors, some within your control and some not.

👉 First and foremost, value is in the eye of the buyer. What this means is that different types of acquiror will value your business differently, as they are looking at it through their own lens.  A strategic buyer, such as perhaps a competitor, a customer, vendor, or investor, will likely assign a higher value as they are generally considering what sort of synergies and growth potential there may be by merging your business with theirs or others they own. A financial buyer, such as  PE firm, will likely try to drive the price down since their motive is generally some sort of shorter term financial gain.  If you are selling to a management team or employees, the price may also be lower, and in some cases you may end up holding a note as the seller in order to facilitate the transaction.  Whatever the case and whatever your plans for your business it is always a good idea to know the range of values for your business and it is a good idea to employ an independent business valuation expert to help you figure this out.

👉 But how is that range of values determined? Another great question. In addition to the different types of buyer, there are also many different valuation techniques that are used today.  I will not get into all of them, but what you will find a lot of time is that the valuation will be driven by something called EBITDA – Earnings Before Interest Tax Depreciation and Amortization.  Sounds complicated.  But it really is not. To calculate EBITDA, take your net operating income and add back any interest, tax, depreciation and amortization from your P&L.  Your company will be valued a lot of time on a multiple of this EBITDA number.  Many times, their will be a “normalized EBITDA” used.  The process of normalization makes adjustments to EBITDA to account for some of those potential “personal expenses” that might have been running through the business.  I know, not your company❗️❗️ Normalization goes both ways though, there can be add-backs and deductions.

👉 If you have made it this far.. congratulations.  One more thing on EBITDA.  Generally a buyer will want to see a history of positive and improving EBITDA.  Maybe you can get away with only the trailing 12 months, but a lot of time you will need to show 2 to 3 years of improving performance, with a long-range plan that identifies further opportunities for growth.

👉 Maximize the value of your business today by focusing on improving your EBITDA and if you need some help let’s have a conversation.

💥 WHAT ARE YOU DOING TODAY TO MAXIMIZE THE VALUE OF YOUR BUSINESS, WHETHER YOU ARE SELLING OR NOT ❓❓