How Much Can I Sell My Business For?
Determining it’s value is more than just calculating a number…
You’ve likely heard the phrase, “Your business is worth as much as someone is willing to pay for it.” Valuation is a topic that divides the world of mergers and acquisitions…
Valuation is a topic that divides the world of mergers and acquisitions, and you will find a difference of approach when it comes to establishing what the likely value of the business might be.
Revenue, profitability, industry trends, and market demand influencing the business valuation. However, the basic equation is actually quite simple:
Adjusted EBITDA x MULTIPLE = ENTERPRISE VALUE
For example, assuming an Adjusted EBITDA figure for the current year is £2m:
£2m x 4 = £8m
£2m x 5 = £10m
£2m x 6 – £12m
So we could now assume your business is worth between £8m and £12m… But, is that a good estimate of what your business is likely to be worth? Well, it’s a start, but it’s so generic that it’s bordering on being of little to no value. There are many questions you need to ask – even with this simple example.
How did we arrive at adjusted EBITDA, were the adjustments fair and reasonable?
Is 4 to 6 a typical multiple range in your industry? It could be more, it could be less…
Is the current year profit the right figure to use? What about future growth or past performance?
The only way to ascertain exactly what a business is worth is to take a properly prepared business to a carefully curated selection of motivated acquirers. What value might they attribute to the business beyond a purely financial model?
For further insight read our article How Much is My Business Worth? A Simple Valuation Guide for Sellers and if you want to explore the topic further download our guide How to Value a Business which explores the methodology behind valuations in more detail.