There was an interesting article today in The New York Times blog, You’re the Boss titled “Determining Your Company’s Value: Multiples and Rules of Thumb.” In the article, the author describes a meeting she had with a business owner interested in selling his business. All of his paperwork was in order, the business was profitable, and he was determined to sell; however, she felt his asking price was way too high – 11 times the company’s EBITDA.
It is appropriate, when determining the value of your business, to include a multiple; however, there are standards that determine the multiples that you should use. For example, if the business owner talking to the blog author was selling a wind farm, his asking price wouldn’t have been too far off the mark. When selling a wind farm, you can multiply your EBITDA by 10.
Of course, there are many factors that go into determining a business’s value, such as intellectual property, competitive advantage, and inventory, but the bottom line is that determining a business’s value isn’t easy. That’s why it’s so important to work with a professional who understands all the factors that will help you determine the most accurate value of your business, which will help you decide on a sale price if you’re seeking a buyer.
