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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. One of the most common questions asked when deciding to buy or sell a company is what it is worth.
Determining a company’s value requires the consideration of multiple factors to make up one all-encompassing number, usually known as the MPSP or most probable selling price. Here, we break down three parts of determining a company’s valuation and what they mean for you. One of the most common questions I’m asked about in my line of work is, “how much is my company worth”?
And the two things clients always seem to focus on and confuse, are goodwill value and blue sky value. Maybe you’ve heard this jargon used before or maybe it’s completely new territory for you. Either way, let’s dive into what these terms are and why they matter to you. If you’ve ever climbed Mt. Everest, you probably had a kick*** sherpa.
Okay, so most of us haven’t climbed Mt. Everest, but maybe you’ve heard of a Sherpa? A Sherpa is an expert mountaineer known for helping lead treks up Mt. Everest. They are highly skilled, well aware of the terrain, and highly regarded for their experience and know-how. As a business broker, I am like a deal sherpa. I bring a team of experts to help our clients get to the top of their “mountain”: buying or selling a business. |
AuthorKatie is coach, entrepreneur, and deal-maker that partners with business leaders in creative ways to maximize potential. She understand the complicated lives of entrepreneurs and believes the world would be a better place with even more successful small businesses. A fourth-generation entrepreneur, Katie purchased her first business in 2010 and has partnered with hundreds of business leaders to accomplish their goals, challenges, and visions for a bigger future. Katie is certified in Conversational Intelligence® — the neuroscience of leadership, and holds a B.A. in Business Management from Luther College in Decorah, Iowa. Archives
April 2020
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