The Value of Your Business
Calculating your Business’ Value…
How does one determine a fair price for your “wonderful” company? Of course, you probably have a number in mind. Most business owners do. But it’s typically and understandably inflated and biased.
It may sound easy: identify what the market is willing to pay for your company, also known as “open market value”.
But to arrive at that number, you need to determine your adjusted earnings or EBITDA. This is multiplied times a “market multiple”.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
EBITDA
The formula for adjusted earnings is Net Income and adding back interest, taxes, depreciation, amortization, and discretionary expenses.
Multiple
Like a Price/Earnings ratio of a publicly traded company, the multiple reflects your company’s future earnings potential, tempered with the probability to attain that number. Typical lower mid-market multiples range from 4 to 8 times the adjusted EBITDA. The multiples will vary by industry and size of the business.
This calculation will be quite valuable. It will help establish the current value of your business and help determine the cash needed for you to leave the business yet live comfortably.
The Salazar Group, an M&A business broker and advisor, specializes in selling businesses with $5M-$50M in annual revenue, at the maximum price.
Start the process today with a complimentary business assessment by contacting David Salazar at 949.742.0711 or dsalazar@salazargroupinc.com.
Maximize your chance to reap the rewards of your life’s work.
Contact us for a complimentary consultation.
