Business Valuation using the multiple of EBITDA formula

There are many techniques used to estimate business value, but the technique most familiar to small business owners is the multiple of EBITDA represented by this basic formula: EBITDA x Multiple = Business value. The formula is simple, but widely misunderstood. We often hear business owners say things like “My competitor just sold her company for 6 times EBITDA, so my company must be worth 6 times EBITDA also.” Or “Companies in my industry typically sell for 4 - 8 times EBITDA.” The owner then does a mental calculation of their business’s value, and “the number” becomes the presumed sale price. And it’s almost always wrong.

We’ve worked with scores of business owners to plan or execute their exit and one of the first things we do is establish a realistic current business value. The valuation we develop is often quite different from what our clients have calculated on their own. In this article, we’ll explain how to use the multiple of EBITDA formula more accurately. This articles is not a substitute for engaging a valuation professional, but it should help to make those rule-of-thumb calculations more realistic.

Part 1 - Adjustments to EBITDA for business valuation.

Part 2 - What’s the right multiple for your your industry and company size?

Part 3 - How does “business value” translate into a sale price.

You can find the complete article on our website here,

https://www.venture7advisors.com/post/multiple-of-ebitda-business-valuation-method