Instantly Increase Your Business Value
Small Tweaks That Can (Instantly) Increase The Value of Your Business
At some point or another we all wonder, what could I get if I sold my business today? Usually its after a tough week, or a key employee deciding to leave, or losing a major customer. We jump on the internet and start to search.
One thing we all will discover is that it ultimately depends on what your earnings are. Depending on your industry, you get 1x, 2x, maybe 10x your earnings. For small businesses, this multiple on pre-tax profit, is referred to as Sellers Discretionary Earnings (SDE). For larger companies we would call it Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA).
If you’re anything like me, I want that multiple to be as high as possible. Obviously if you have $500,000 of pre-tax profit, a 5x multiple is better than 2x. So the next logical thought is, how do I improve it? First we need to take a step back and look at profitability.
Most people think of profit as completely objective. An accountant or actuary looks at your books and comes up with a number. However, an acquirer is going to have a much different view and will make “adjustments”, and you can help tweak that view in your favor. How??
Let’s use a simple example. Assume you pay yourself $200,000/year. Let’s also assume you could hire a competent manager for $100,000 to run your business as a division of the new company. They don’t need your skillset and be able to make all the strategic decisions – they mostly need to be able to run day to day operations.
If your industry typically has a 5x multiple on EBITDA, you have the potential to increase the value of your business by $500,000! You will need to be able to make and defend the case for this point, and these types of adjustments are more art than science.
Some of the most common adjustments relate to rent (common if you own the building your company operates from and your company is paying higher-than-market rent), start–up costs, one-off lawsuits or insurance claims and one-time professional services fees. Your multiple is important, but the subjective art of adjusting your EBITDA is where a lot of extra money can be made when selling your business.
Use the tool below to calculate your EBITDA – and if you’re interested in improving some key drivers of your business value, take the Value Builder Score assessment as well.
