Building Bridges ... Mergers & Acquisitions for Companies of $5-$50 million in revenue.

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Buy Side AdvisoryMergers & Acquisitionsselling a businessClosed TransactionsGrowth through Acquisition







Two Questions to Ask Before You Decide to Sell Your Business

May 13, 2014 at 8:07 AM

Let's face it, you aren't getting any younger.  Some day you will need to exit your business.

As you work on building your business you will inevitably face the question “Should I sell and go or stay and grow my business?”.  To honestly answer that question begin with the end in mind.   We recommend asking yourself 2 questions:

  • If I sold my business now what would I do next?
  • If I sold my business what price would I need to sell it for?

If you can't think of anything you'd rather do than run your business and grow it for another 5-10 years than you don't need to answer #2 quite yet.  However, if the idea of retirement, starting another business, helping your favorite non-profit or just spending more time with the kids or grandkids sounds attractive than #2 must be answered. 

Many times business owners are reluctant to tell us their target price.  In fact this is the first thing they should share.  Although your company may not be worth that price today we can help you define the gap and how to get there.  Here's a simple exercise you can try:

  • Write down your target price: Let's use a $10,000,000 price for this example
  • Take your current EBITDA (Earnings Before Interest Taxes Depreciation and Amortization)) = for this example we will use $2,000,000 in EBITDA
  • Divide your target price by your current EBITDA to get the Multiple of EBITDA you would need to sell your company for to achieve your price.

    $10,000,000 divided by $2,000,000 = 5.0 Multiple of EBITDA
  • Now compare your Multiple of EBITDA to the chart below.  Historical data from the sale of other companies indicates a 5x multiple of EBITDA is highly likely given similar size companies (5 -50 million in revenue) typically sell for 5 – 10x .
  • Final Step: Be realistic and get some advice.  Multiples are largely driven by Risk and Growth.  If your business profit is growing in leaps and bounds, you have a great management team and the industries your serve are healthy, chances are your multiple will on the higher end of these ranges.  On the other hand if your business is flat, has limited growth opportunities or is highly dependent on you running it then the multiple will be lower.    If you really want to know what your business is worth, and whether now is the time to sell, talk to someone like Sunbelt Business Advisors who sells businesses for a living.  Sunbelt offers a Complimentary Value Range to business owners to help answer these questions.