I constantly see people make seemingly small mistakes that add up to big calculation errors when valuing their small businesses.
One common error is valuing a small business as a multiple of EBITDA instead of SDE. EBITDA is more accurate when valuing a company with a management team in place that usually has more than 50 employees. SDE is the more accurate measurement for owner-operated small businesses with 5-50 employees.
The size of your business matters. Why? Because it affects how quickly your business is sold. And in these uncertain economic times, how quickly your business sells matters now more than ever.
Each transaction matters when you’re selling a business, regardless of what tier it falls into (mom and pop, main street, large corporation, etc.) As a premium main street business, you can’t exactly advertise that your company is for sale. These sales must remain confidential so that you don’t upset the balance of the business’ economy. So let’s walk through the various sizes of companies and what you can expect when selling one.