There are many ways to value your business and each one has its benefits and weaknesses. Knowing which one is best for you puts you ahead of the competition
The most common methods used in professional M&A firms (including banking, private equity etc.) are:
- EBITDA (earnings) multiple
- Revenue multiple
- Discounted Cash Flow
- Precedent Transactions (consensus price based on other similar transactions)
A business with recurring revenues and high customer loyalty has a higher future value than one that has one-off purchases and must constantly source new customers, even if they both have the same EBITDA for the last 3 years. Thus, different valuation methods are used.
Understanding how your business is valued by potential buyers gives you a head start in the sale process because you can prepare your business accordingly. Valuing your business using a different valuation method to your buyers sets you on the wrong path, with unrealistic expectations. Knowing what buyers in your industry look for means you have insights that put you ahead of other sellers. Or it may even get you looking outside your industry and into other sectors for a buyer who is looking for a break into your industry sector or who operates in a complementary space.
I’m not going to go into the details of valuation methods here. That’s worthy of an entire book.
The truth is you shouldn’t have to worry about every aspect of the process. You’ve been busy building your business, not learning to become an M&A (mergers and acquisitions), legal and corporate finance specialist. Here I just want to eliminate some uncertainty and make sure you have the tools and knowledge to enable your business to thrive into the future.
Are you ready to sell? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.