Business Valuation

EBITDA, Normalized EBITDA, & CAPEX Earnings before interest, tax, depreciation, and amortization (EBITDA) is a measure of the cash flow of a business. EBITDA is calculated as follows: Net income before taxes + Interest on long-term debt + Depreciation and amortization Normalized EBITDA Smaller, privately owned businesses typically require additional adjustments to EBITDA: Revenues or expenses…

A multiple, or multiplier, is applied to the cash flow (in our case, EBITDA) of a business to determine its value. The multiple is a way of measuring a buyer’s level of risk. The higher the multiple, the lower the perceived level of risk. That’s why large “Dow Jones” businesses sell for much higher multiples…

If you’re not planning to sell your business right away, you have the opportunity to build its value. Bear in mind though, that the landscape for selling businesses has changed significantly. A majority of business owners are nearing retirement and the upcoming 5-10 years or longer will likely be a buyer’s market. This is a…

It’s obvious that buyers will first look at the financial factors of a business for sale, such as past and current profitability and trends. If a business isn’t profitable, it has no value beyond the value of its assets. Assuming a business is profitable, it will have a certain value to buyers. The value, however,…

Business value drivers are those factors that can affect the value of your business and the eventual sale price. Although they could all be important, there are some that are almost always examined by buyers. These are what we call the Ten Fundamental Factors That Affect Business Value, or the key business value drivers. Key…

It’s natural that you would place a higher value on your business than a buyer would. You probably invested years into building your business, and you no doubt have some strong emotional ties to it. But buyers just want to know if buying your business is a good investment. It’s rare for them to have…