EBITDA Add Backs and Adjustments
A common method used to calculate business value involves applying a multiple to the company’s EBITDA. And while business owners who intend to sell their business have many options to increase the transaction multiple, one way to unlock value using this calculation is to identify other, non-customary “add-backs” to increase EBITDA.
![The Three Business Valuation Approaches [Infographic]](https://b226520.smushcdn.com/226520/wp-content/uploads/2022/10/three-approaches-to-business-valuations.jpg?lossy=1&strip=1&webp=1)
The Three Business Valuation Approaches [Infographic]
At some point during a company’s existence, it’s very likely a business owner will need a business valuation. Regardless of the reason, it is very important to understand how business valuations are conducted.
The Negative Effect of Concentrations on the Value of a Business
When all other factors are equal, the presence of a significant concentration among customers, suppliers, and/or employees results in a lower business value than might otherwise be expected due to the underlying inherent risks associated with any or all of these concentrations.
Buying and Selling a Business in a Changing Market
Buying and selling a business is a challenging and calculated process that is influenced greatly by market conditions. On one hand, business buyers must consider the historical performance of the business they intend to purchase and gauge that against financing options and other acquisition challenges to make a judgment call on how the business would perform post-acquisition. Business owners, on the other hand, must consider the money they are making now, and weigh that against a pay out and their need or desire to work less.
Does the Stage of My Business Matter When It’s Valued?
Many business owners are uncertain about how to establish a value for their business, regardless of its stage of development. How to value ideas, start-ups and mature businesses differ greatly. Learn more.
What the Great Resignation Means to Your Business
If you intend to grow and sell a valuable business, the Great Resignation that kicked off in mid 2021 means everything. Everything that is if you care about the value of your business.
How to Add Value to Your Business
Business owners who address the three hallmarks of a valuable business are very likely to have more options for exit and attract multiple buyers.
Business Broker Fees and Other Business Sale Expenses
When it comes to the sale of a business, there are a number of costs – both expected and unplanned – all business owners should understand before they agree to sell their business. A few of our Featured Advisors have weighed in, offering their expertise and perspective to explain the costs – from business broker fees and legal costs to hidden fees – as they relate to selling a business.
4 Things To Do to Prepare to Sell Your Business
What should a business owner do to prepare to sell his or her business some time in the near future?
Aside from right-sizing the business’s overhead costs to line up with its current level of revenue, and looking for opportunities the pandemic may be presenting, there are four things a business owner can do now to prepare to sell. And more importantly, doing these four things will mean that when a Letter of Intent is received from a buyer, the business will be very well-prepared to survive the due diligence stage of the sale.
Closing Business Deals in the COVID-19 Era
The COVID 19 Era has begun. In addition to lives lost, there’s an economic toll that has yet to be determined at the time this content is being written. With small businesses on life support, these are scary times for business owners and for the intermediaries helping owners navigate through them. So how has COVID 19 affected business transactions?
Won’t My Business’s Assets Increase the Value of my Business?
As a business intermediary helping owners determine the “Most Probable Sales Price,” or MPSP of their businesses here in the Triangle, I hear a common question:
“That value makes sense, but what about all my stuff? Can I get paid for that too?”
The answer is rarely what the business owner wants to hear, but there’s a sound reason for it, and understanding how businesses are priced can help an owner with decisions on how to allocate resources for assets; especially if they are planning to sell in the near future.
In this article, we’ll explore the market approach for small businesses and what value the assets carry…
Understanding Business Valuations
Quite simply, a business valuation is a process and set of procedures used to determine what a business worth. Sounds unambiguous, right? But it takes more than just plugging numbers into a formula — a credible business valuation requires knowledge, preparation, and a thorough understanding of the business. The result is an objective assessment of the real value of the business. In addition to estimating the selling price of a business, a business valuation can be used for many legal purposes such as divorce litigation, shareholder disputes, and estate or gift taxation.
When to Hire a Business Advisor
Doing deals can be expensive. A lot of entrepreneurs want to save money by not hiring an advisor or they don’t know when they should make the investment on an advisor. It’s important to understand the roles of the broker and other advisors, especially legal counsel, and to know when to bring in a professional. Here are some milestones in a deal, and how to know when to hire a business advisor.
How to Overcome Customer Concentration Objection When Selling a Business
One of the greatest risks any buyer faces is what will happen to the business’ best customers post-sale. Will the top customers celebrate the founder’s great accomplishment or maybe decide it’s a good opportunity to negotiate better pricing or payment terms with the new owner? Or worse yet, will they be spooked by the new owners and find an alternative vendor?
Astute buyers measure this risk quickly. Typically, one of the first questions experienced buyers ask the business broker is about the presence or lack of a customer concentration.
For the business owner considering the sale of his business in the near future, having a clear understanding if a customer concentration exists is vitally important. In fact, the lack of a customer concentration is a great selling point.
What is the Value of My Business and How to Improve It?
Depending on the circumstances and objective of the owner, the value of a business can vary considerably. For instance, upon sale to unrelated party, an owner would expect to receive the maximum purchase price for their business the unrelated party is willing to pay. However, that same sale to a family member or employee may need to be structured so the cash flow of the business can support the purchase price.
For a closely held business, owners generally have little idea about the value of their business, or whether their business is generating an adequate return on investment, and what drives its value.
How Can a Broker’s Opinion of Value Help a Business Owner?
A Broker’s Opinion of Value, or BOV, can help an owner determine what the business would sell for on the open market. This, in relation to an owner’s “pain” level, are often enough to make a decision if they are ready to sell.
Earnings Growth Versus Revenue Growth
v Have a Question? Add it to the bottom of this post! For many entrepreneurs, launching a new business often means walking a fine line between pursuing earnings growth and growing the top-line revenue. A business can’t be successful in the long-term without earning a...
Contribution Margin Formula
Contribution margin is an important method of not only understanding how profitable a business is, but also how its products and services contribute to the bottom line. It’s important to understand that contribution margin is different from profit margin, since profit...
Working Capital Adjustment
v Have a Question? Add it to the bottom of this post! When a business is sold, sometimes an adjustment to the purchase price is needed to make up any difference between available working capital at the time of closing, and the working capital needed to maintain...
EBITDA Margin and Adjusted EBITDA Margin
EBITDA Margin and Adjusted EBITDA Margin are similar measurements used by business owners and others who value businesses for sale. Let’s break down the two terms to help your understand which measurement of profit and cash flow are most relevant for your...
Discount Rate
The discount rate can be defined in several ways. For purposes of this post, the discount rate will be defined as it relates to small and medium sized businesses (SMBs) and the Discounted Cash Flow (DCF) valuation method. As it applies to a business investment...
Business Goodwill
Business goodwill is defined as an intangible asset that increases a business’s value above and beyond its current market value. Business goodwill arises when one company is acquired by another at a premium, above market or book value price. Goodwill can be attributed...
Business Value
The term business value is a broad term that refers to any form of business valuation which determines the financial health and potential of a company. While a purchase or selling price is simply an amount that may be asked to be paid for a 100% ownership of a given...
Cap Rate
Capitalization Rate, more commonly referred to as Cap Rate, is the rate of return on a real estate investment based on the income the property is expected to generate. In other words, the Capitalization Rate is used to estimate an investor’s likely return on...
FF&E
Furniture, fixtures, and equipment (or FF&E) is an accounting term used in the process of valuing, liquidating, or selling a company or building. FF&E refers to any fixture, piece of furniture, or piece of equipment that is moveable and is not permanently...
Buy-Side and Sell-Side
The investment banking market is made up of two sides – the buy-side, and the sell-side, both of which are responsible for researching and assessing stocks and other investments. The buy-side refers to advising institutions concerned with buying investment services....
Middle Market
Middle market or “mid-market” companies or firms are businesses that typically earn between $5 million and $1 billion in yearly revenue. This group of businesses makes up the middle third of the U.S. economy’s revenue and employs 25% of its labor force, with large and...
Quick Business Valuation
As a business owner journeys through entrepreneurship, it’s inevitable for most to seek a quick business valuation on one or more occasions. Such a conversation with a business advisor may be about the need to understand the value of the business for the purpose of...
Intangible Assets
Intangible assets are those assets in a business which are not physical in nature. Some examples include: intellectual property, (like patents, trademarks, and copyrights), brand recognition, special knowledge, and business methods. Such non-physical assets add value...
The Value of a Business Plan in Selling Your Business
A business plan is critical to the success of any business. And, if the plan is frequently reviewed and updated, it becomes increasingly valuable over time. It provides valuable historical information to help a business owner make decisions on the future direction of the company.
When Selling a Business, Valuation is a Factor and Timing is Everything
As I meet with entrepreneurs, I’m often asked the same question: “When is the best time for me to sell my business?” The answer to this question is not the same for every business owner, for many reasons.
Definition of EBITDA
EBITDA is an acronym for Earnings Before Interest Taxes Depreciation and Amortization. EBITDA is often used as a measure of a business’s cash flow. Also it is used frequently in many business valuation formulas, depending on the business’s specific industry.
Key Questions When Transferring Your Family’s Business
Anyone who owns a family business is intimately familiar with the blood, sweat, and tears associated with building and then keeping the business viable. Nevertheless, it is not unusual for the business entrepreneur to postpone consideration of various issues involved in transferring the business to the next generation, including determining the value of the business.
Understanding Business Valuations (Transition Plan for the Business Owner)
At some point in time, every business owner will leave their business (voluntarily or involuntarily). Through proper planning, an owner should expect to achieve their desired goals. Statistics show that the value of an owner’s business accounts for over 90% of their personal wealth. However, more than 75% of all business owners do not have a formal transition plan in place.
