Empire Business Solutions, a leading Business Broker and M&A Company based in Huntington Beach, gets this question all the time. At Empire we offer a Broker Opinion of Value for free for qualified sellers but for our discussion today, let us explore a few of the variables which go into a proper valuation.

When looking at the value of a particular business, you can look at the following check list first.

The market segment served by the business
Proprietary/Patents aspects
Revenues Size
Profitability
Geographic Market Served
CapX requirements
Intangibles
Growth Rate

Quality Of the Earnings

Some brokers are aggressive with add-backs and non-recurring expenses to arrive the re-cast EBITDA. These add-back and one time expenses need to be examined and vetted to make sure they are real as many are really ordinary business expenses. These add-backs inflate the profitability and result in failure to reflect the true profitability of the business. Make sure the all the information is being made available to the buyer in a timely fashion.

Sustainability of Earnings and Growth Rate

Will the buyer of the business be able to sustain the profitability after acquisition? Questions which need to be asked and answered;

Are the company projections believable?
Where is the growth coming from?
What services/products are creating the growth?
Where are the customers coming from to support the projected growth ?? and why?
Are there long-term contracts in place?
How reliable are the contracts/orders?

The key to the valuation is the sustainability and the growth rate. This value driver is a major consideration when buyers are considering value. The multiple applied the EBITDA will increase significantly if the answers to the above questions are positive and verifiable.

Bottom line is that if you have a good growth rate which will continue and this can be supported and documented, the valuation multiple will definitely be higher.

Again, Empire offers a FREE Broker Opinion of Value for qualified sellers so do not hesitate to contact us to learn more about this service.

Contact Information

Empire Business Solutions
Roy Moss. President
Huntington Beach, California
Phone: 714-374-6430
Email Id: [email protected]
Website: www.empireoc.com