Determining Your Company’s Value: Multiples and Rules of Thumb

Determining Your Company’s Value: Multiples and Rules of Thumb

Note:  Last year’s multiple average was around 2.5.  This article is as straight-forward as we’ve seen.  Most articles you’ll see about business multiples are way out of whack.

The meeting continued to hum along nicely as the seller recounted the history of his company and listed its biggest customers and possible buyer candidates. We listened carefully, impressed by how thoroughly he had prepared for this day. Then we asked if he had a particular asking price in mind. His number, he said, was $8 million. If I had sound effects in my conference room, I would have cued the needle scratching across the surface of a vinyl LP.

So, what’s the problem with an asking price of $8 million for this business? The primary issue is that the price would be a multiple of 11 times Ebitda, or almost nine times S.D.E. according to the seller’s financial statements. Given the industry and the asking prices for similar businesses for sale across the country, those multiples are far beyond what most buyers would consider reasonable in today’s market.

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