As a business broker, you’re an expert in doing what you do. But how good are you in doing things that you’ve never done before? If you’ve never sold a business, then it could make sense to rely on an expert for assistance. Here are some advantages of using a business broker to sell your business:
Business valuations using EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation) is a widely used profit related valuation method.
When EBITDA is employed in valuing a business, it needs to be “adjusted” which should include any “add-backs” as part of the “normalising adjustments” which will typically take into account of items such as:
A multiple is then applied to the “Adjusted EBITDA” figure, which will determine the Valuation for the business (or amount of Return) if the shares are then sold. The EBITDA multiple in the valuation process is often based on an industry based average, calculated on a sample of transactional values and multiples of similar sized businesses sold. The multiplier figure for SME company valuations, is usually between 3 and 5, sometimes higher eg 7 or 8 or higher still when a “special purchaser” is involved in buying the business, ie a purchase for strategic reasons; the actual multiplier taking into account risk factors, business environment, market potential etc.
Risk Factors that affect Value
We all know that “the higher risk, the greater the return” but when it comes to business value, those risk areas need to be reflected the other way around as generally, “the lower the risk, the higher the value” and therefore, the Valuer will take into account the “risk factors” which will determine the multiplier, such as:
When evaluating the value of a business, it is important to understand what “adjustments” have been made (or not been made) and what multiplier has been used. These must be seen to be fair and reasonable, otherwise a false impression of value could easily be made.
For further information on EBITDA Valuations, please CLICK HERE.
Business Valuation Service
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Achieving a Rapport with Clients
Phil Perchard discusses the steps that business brokers should take to maximize their odds of success. One of his points on building success centers on establishing a good rapport with clients. In order to achieve this, it is important to keep in mind that the first meeting is of paramount important. As he points out, trust isn't established until it is felt by both parties