A man (let’s call him Fred) once came to me thinking about selling his business. He was doing about $1 million a year, and his EBITDA was about $100,000, or 10%, but we’ll explain that later. For now, just know that Fred, using the most basic formula, estimated his business to be worth between $300,000 and $500,000.
It wasn’t. That company, I told him, was worth $0.
My experience in purchasing and selling businesses gives me a unique perspective on their value beyond numbers. Fred overvalued his business because he failed to consider all the factors involved in creating and maintaining value. If you’re selling your business, or ever plan to, learn what investors value and take action now to obtain it so you can make the most of your sale.
GET TO KNOW YOUR EBITDA
The primary drivers of a business’s value are EBITDA (earnings before interest, taxes, depreciation, and amortization) and multiples of EBITDA. It’s like net profit,…