Business Valuation

Multiples are usually industry specific. If I was in your situation I’d get an outside 3rd party to give me a business valuation. You don’t have to share it with them but at least you know. Probably a good $1500-$2000 to spend.

Really difficult to discern a number without a detailed analysis to ensure you receive the price you deserve.

Meet with a CPA firm that specializes in small market transactions. Additionally you could reach out to a regional bank that has a merchant bank operation.

One key metric that can really sway these is how much effort the owner puts in to the business and what the owner’s value to the business is.

If you as the owner have a ton of contacts and really help the business, your value is basically invaluable. If you are removed, how well is the business actually going to do without you?

Also, the business valuation is on the net income AFTER you pay a manager. So if you manage the business yourself but only pay yourself W-2 wages of say $50,000 but then take distributions worth much more then you need to value the business with a realistic GM’s salary built in. Which could be multitudes of your owner’s W-2 salary.

ETA: as said you are correct generally 3-5x net income is a good number but it is industry specific.

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This is so accurate. In ,y business, my customers are there because of me. This makes it very hard to sell my company and to be honest I don’t know how to correct this. Very frustrating when trying to plan for an exit strategy.

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Here’s what I see as a banker. You stay on in a management or board executive role for 3-5 years after the sale. If you want to present it to your clients as still having skin in the game, offer some seller financing too.

Other than that, yea it is tough particularly if you are the owner and top sales guy

My opinions:
If you have a steady & growing bottom line you can ask for and expect 5-7X.

3X would be for a risky business with iffy management.

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This is so accurate. In ,y business, my customers are there because of me. This makes it very hard to sell my company and to be honest I don’t know how to correct this. Very frustrating when trying to plan for an exit strategy.

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Find and groom a personable #2. Help him or her build relationships.

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What kind of business is it?

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I am a distributor (broker) of a specialty packaging material. My company is 20 years old, employs only me, and does multiple millions in sales and has only had one or two years of year-over-year negative growth (none recently). My supplier (subsidiary of Mitsubishi Chemical) is already incurring selling costs by selling to me. If they buy the business, they will simply sell directly to my customers instead of to me and add pretty much 100% of my current Sales minus Cost of Goods Sold to their bottom line. I could see them wanting to have me stay onboard for a year or two to make sure everything transitions smoothly, and obviously there would some sort of ironclad long-term noncompete. In my mind, 3x of the last three years Sales - COGS would be a pretty good deal for them.

Thanks. I may reach back out in the future. I’m still at least a couple of years away from making this move, but want to go ahead and get my mind wrapped around what I can expect.