The value of your business is determined by EBITDA (a.k.a. Net Profit with add backs for Interest, Taxes, Depreciation and Excess Owner expenses) and the multiple.  In simplest terms the higher your EBITDA DOLLARS and multiple, the higher your valuation.  Both factors are under your control, and increasing both should be part of the business plan every year.  The basic equation to compute business valuation is:

EBITDA times Multiple = Business Value

For example, if your EBITDA is $100,000 and the multiple you negotiate is 5, your business is worth $500,000.  The multiple is usually 3 to 6 for a grounds maintenance company, and 1 to 3 for an installation company.  The multiple reflects the risk an investor / buyer places on the business’s future EBITDA.  High multiples reflect lower risk. The factors that justify a high multiple include:

• Size (bigger is better)
• Solid management team
• History of sales growth
• Recurring contracts
• Solid business systems

Another factor is consistent net profit margins above industry benchmarks. Therefore high profit positively affects both variables of the valuation equation.   This is critical because the value of your business is ultimately based on what a buyer will pay for it.  Your job is to create the best possible story to sell it.  Consistent high EBITDA lowers risk increasing the perception of the value for each EBITDA DOLLAR.

How do you do this?  You must (1) grow the right kind of revenues, (2) build a management team, and (3) install business systems.  We can help you do this.  Kehoe & Co. guides our clients in all aspects of acquiring businesses and selling their own at the highest possible price.