Business owners often receive bad information regarding what their company is worth.
They hear multiples and prices thrown around by friends, family, and even trusted professionals. Sunbelt Business Brokers sells more businesses than any business broker in the world so we can help you understand what businesses like yours are REALLY selling for.
Most businesses sell for a multiple of profit. Some industries, like Manufacturing, are considered more attractive and therefore they attract higher multiples. Below is an overview of multiples by Industry from a recent report:
INDUSTRY Multiple of EBITDA*
Manufacturing 4.10
Wholesale 4.36
Services 3.04
Retail 2.21
*Source: Pratt’s Stats Private deal update Q4 2013. EBITDA = Earnings Before Interest, Taxes, Depreciation & Amortization
But this doesn’t tell the whole story.
Even within an Industry you will see a large variation in multiples. For example, the overall average in Manufacturing is 4.10 x EBITDA. However, a closer look at the actual transactions shows you that product manufacturers usually sell for higher multiples of 5-6 times EBITDA while contract manufacturers will often sell for less.
Revenue size also plays a very important role. Companies with 5-50 million in revenue attract better buyers and sell for higher multiples than their smaller industry peers with less than 5 million in revenue. Larger companies are seen as more stable and easier to grow, therefore, buyers will pay a higher multiple.
Value Drivers, those characteristics that make your company unique, play a role as well. For example, companies with experienced management, a diverse customer base and unique capabilities will attract a higher multiple than a company that is owner-centric, has high customer concentrations and is selling a commodity.
Determining your EBITDA (or cash flow) is the first step. It can be complex and that’s where Sunbelt can help. Most business owners do their taxes to minimize taxable income. So when the time comes to value your company we help you illustrate its true earning power. For each dollar we help you uncover, it will mean MULTIPLE DOLLARS in your pocket!
Give us a call today to set up a complimentary consultation.
