Does Size Matter When It Is Time To Sell Your Business

 If we know the business size, particular industry, location, and historical performance we can accurately predict the likely multiple of Seller Discretionary Earnings (SDE). The multiple of SDE increases as the size of SDE increases. Small businesses with SDE less than $100,000 sell for multiples in a range of 1.0 to 2.2, when SDE is greater than $100,000 we expect to see the multiples in a range of 2 to 3, and as SDE reaches and exceeds roughly $500,000 we see the range extend to 2.5 to to 3.5 or more.

When SDE exceeds $1-1.5M; we begin using EBITDA (for the same business EBITDA is a smaller number than SDE), and the expected multiples grow to 3.5 to 5.5. We see multiples of 5 or larger as our EBITDA reaches and exceeds $2M. While there may be range of multiples for any given SDE, we find that most opportunities sell near the middle of the range with very few selling at either extreme. Given the attributes of any opportunity it is relatively easy to understand where the business will fall within the range of multiples.

Other factors that drive the multiple of SDE or EBITA:

·      The stability of the business to survive through down turns in the market

·      Management, employees, and procedures in place, making them able to function smoothly without the owner’s oversight

·      Customer concentration: no one customer being more than 20% of the total sales

·      Reputation

·      Location

There is a substantial amount of real-world comparable data used to determine the multiples for selling a business. This data in addition Transworld Business Advisor’s 40+ years’ experience provide us with a real world indication of the market value of a business as a multiple of SDE or EBITDA.

Transworld Business Advisors is the largest business brokerage company in the US. Our international reach is growing as well. We have over 100 offices in the U.S., over 500 brokers, and more than one $1 billion worth of businesses listed for sale. Our ability to reach potential buyers is unmatched in the industry. When it is time to sell your business, schedule a free consultation with Transworld Business Advisors of Michigan and we can explain how we will position your business to sell at a great price!

517-230-1281 or [email protected]