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.
We often hear about huge companies and their valuations more often than small businesses because the biggest companies are popular news topics. However, smaller companies tend to make a mistake by not realizing there’s a different metric for valuing their own company.
Most importantly, there are exceptions to every rule and every company is unique. It’s crucial to talk to a qualified professional before holding your business valuation too tightly.
Business owners will often reach out to CPAs or attorneys for advice when valuing their business but not every CPA nor every attorney is qualified to give business valuations. Before you consult one, make sure your CPA or attorney is qualified to give you valuation advice.
For small business owners, selling your business is most likely the largest financial transaction you’ll make in your life so it’s imperative that you seek advice from someone qualified to give it.
If you’re in Texas and even if you’re outside the great state, I would love to talk to you more about finding someone qualified to guide you through this process. Especially if you think your business might be sold to a Texas buyer. We have a long list of qualified buyers always actively looking to buy companies like yours.
HMU and let’s chat!