If you’re looking to sell your small to medium-sized enterprise (SME), valuing and advertising your company are the two most important steps after making sure that it’s properly groomed for an exit. We’ve already provided you with the 8 Secrets for Selling Checklist in our newsletter, so this post will focus on valuing and advertising your business to sell it freaky fast.
Let’s start off with how to value your business. The value of a company is typically based on the future cash flows that the company will generate. To get an accurate estimate, you need to take into account earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as other factors such as the Owner’s Salary, Rent, or Lease Payments, and any add-backs. Writing off personal expenses under your business will dramatically hinder your valuation, so don’t do it!
The financial analysis is the first step to evaluating a company for an acquisition. This analysis will include the company’s balance sheet, income statement, cash flow statement, and the market value of the company’s stock (when applicable).
Here at ASE, we can help you value your business for selling with EBITDA, WACC, comparison companies, and the business brokerage press.
A multiple of EBITDA will usually be used to value the company. And I know that Warren Buffet thinks it’s a joke, but it’s also become the standard method of communicating a company’s value.
The formula for EBITDA is:
EBITDA = E + I + T + D + A
EBITDA = Earnings Before Interest, Taxes, Depreciation, and Amortization
E = net income
I = interest
T = taxes
D = depreciation
A = Amortization
Suppose that your company is doing less than $2M in topline/revenue. In that case, a multiple of EBIT may be used. EBIT is the same as EBITDA but without depreciation or amortization.
The second half involves getting the business’s valuation multiple by industry, which you can get from the business brokerage press or the NYU Stern School of Business’s website.
You can usually expect a 2-4x multiple for lower-market deals under $2M based on how organized the selling company is.
How to Increase the Value of Your Business?
Improving your EBITDA is a two-front war that focuses on your top line and bottom line.
If you have a brick a mortar business, consider setting aside at least $160 a month for Yelp ads (Don’t worry, it’s not very technical when compared to Facebook or Google). Review management is key so, start incentivizing people to leave you a positive review with a discount, candy, food, and merch.
If you don’t have a brick-and-mortar, you’ll have to find the right paid advertising medium for you. Bing and Google ads with a 30 – 50 cent cost per click (CPC) will at least be a good starting point for split testing material. Or you can always buy your own traffic sources like social media groups and other websites.
This post goes over more detail on buying digital traffic assets, Why You Should Buy And Not Rent Your Traffic Sources.
Lastly, use Square and Mail Chimp (or a similar tool for customer management) to collect emails and regularly email promotions, coupons, discounts, and funny stories.
Now on to the bottom line, lads.
If you’re not a numbers person, hire a bookkeeper to organize everything for you. Then hire a VA to focus on cutting supply or inventory expenses through vendor selection and contract renegotiations. That’s the low-cost option.
The more hands-off option would be finding a financial firm that will do all this for you.
A quarter or two of focusing on top line and bottom line systemization should give your financials a sweet upward trend.
And give your business the perception that it still has room for growth in the eyes of a prospective buyer.
But where do you find said, buyer?
How Do You Find a Buyer for Your Business?
If you just want to quickly list your business Biz Buy Sell, Axial, and Deal Stream are three of the most used sites.
For companies over $10M in top line Deal Steam and Axial will be a better option.
If you want a professional to go through the process with you an investment banker or M&A advisor will be your best bet.
Investment bankers will have a floor for the top line of the companies they’ll work with.
For lower market deals under $2M in topline be careful about signing any exclusivity agreement before the Letter of Intent (LOI). If you sign a multi-year exclusivity agreement with a broker, they’ll become the bottleneck for a quick transaction!
This Forbes article goes over some of the most common reasons why companies don’t sell:
And our newsletter has you covered if you need a confidential information memorandum (CIM) or Pitch Deck Template.
But the area that gets the most overlooked when advertising a company for sale is its overall appearance. Is the parking lot clean, is the building clean, is the website up to date, are the first points of contact friendly and professional?
All in all, it should be a no-brainer to spend some time and money in the following areas:
• Implement Jay Abraham’s referral systems
• Spend at least $160/month on Yelp/PPC Ads
• Use email marketing
• Organize your finances with a bookkeeper
• Cut expenses through renegotiations and price comparisons
The financials are always the first thing that a prospective buyer looks at, so place an emphasis on it and put your best foot forward.
And even if you’re not looking to sell the EBITDA portion of this post is sound business practice and still applies to you!
If you don’t start taking action within 24 hours of reading this there is a good chance that you probably won’t do anything at all!
So, make sure to block out 14 minutes to get your ABS Score.
The Above the Business Score is a crucial step in optimizing your business’s future and is included in your complimentary growth package. Whether you are planning to exit now or in many years, getting your Above The Business Score today will allow you to:
Diagnose what’s holding you back from creating a company that can prosper without you.
See your business from the eyes of a prospective acquirer.
Identify what’s hindering the value of your business.
Verify what makes your business valuable.
And it only takes 14 minutes.