If you are thinking about selling your business the biggest question is most likely “How much is my company worth?”

 

Valuations can be completed by an Accounting or Finance advisor but the most accurate calculations are usually completed by professionals who are directly involved in the M & A market like Eagle Business Brokers.

 

 

This simplistic method uses the previous year revenues of the company multiplied by an industry specific percentage.  Unique characteristics can also be added such as real estate, patents, unique products, etc.

 

This method is not normally used because it omits important factors and can often result in an understated valuation.

 

This valuation model is calculated by determining the average annual EBITDA for a company and then multiplying by an industry specific multiple.

 

It is not usually used for small to medium sized companies because it omits important sources of income including seller compensation, add backs (perks) and non recurring expenses.  This often results in an understated valuation.

 

The SDE calculation includes company profits before interest, taxes, depreciation, owner compensation and one time expenses.  This information is averaged over a period of 3 years and then multiplied by an industry specific multiple.  The correct multiple is based on our various market resources.

 

This method often results in the largest valuation and is often preferred by finance institutions.