Once the EBITDA is properly evaluated, we then need to know by how much we can multiply the it to have an indicative value of the company.
The element that best defines the multiple is the certainty of having future income, or an indication of the risk of the company. The riskier it is, the less we can use a big number.
We can start with the INDUSTRY – a key element, because often – from this we can understand the business model (are the customers always to be renewed as in construction or are they under recurring contract), level of competitiveness, customer diversification (what % of sales is represented by customers representing more than 10 or 15% of the total), supplier dependence, etc.
Every company is different – and at this point we find a nice correlation between the GROSS MARGIN and the applicable multiplier. A company which generates 45% will obtain a higher multiple than its competitor which has 30%… Why – because each sale will be even more profitable for the first company…
Another factor that impacts a lot is the SIZE of the company. If it has 10 employees, and everything depends on the strength of the entrepreneur, the company will be worth less than its competitor, which has an organizational structure, 100 employees and CONTINUITY OF OPERATIONS if the main shareholder leaves.
To properly establish the multiple, it is necessary to call on people with EXPERIENCE… there may be comparable sales, the feasibility of the project must also be reviewed (by looking at the possible financing for a buyer and determining the down payment required for the project). DATABASES exist for transactions and can also support viewpoints.
You can get a full valuation from professionals, an idea from your accountant or business sale specialists, just contact us – we can give you an idea of the market value.