Most buyers focus on the TTM (trailing twelve months) to evaluate what they will pay for your business, not what your EBITDA was five years ago in your peak, before you got tired, before you lost your mojo.
When you’re selling a business, put issues on the table right away. Whether you have ineligible employees on your payroll, you just lost a client, or litigation is pending—be up front.
A business valuation is a crucial tool for any business owner or manager, as it can provide valuable insights and information that can help inform important business decisions. There are several reasons why it is essential to know the value of your business and how often you should get a business valuation.
You’ve decided to sell. Now how can you get the most for your business? You need to “clean up your act,” so to speak, and address some operational issues that may not have been a priority for you over the years.
There are several myths about selling a company that can be misleading or simply not true. Here are a few common myths about selling a company:
The M&A world isn’t quite sure what to expect in the next recession. Private equity players weren’t nearly as dominant through the last market downturns. But today those firms have $1.8 trillion in uncommitted capital they need to put to work. With money to spend, and a timeline to do it, private equity may help keep valuations high.
You can practice some back of the napkin math to value a company, but it’s not always reliable. A company with $3 million in EBITDA, may, as a general rule of thumb, sell at a 4x to 6x multiple. In other words, it might sell for $12 million to $18 million in an average market.
When you sell in good economic times, most times your cash flow is growing, so you get more value out of your business. But multiples are also going up, so you get the benefit of rising cash flow plus rising multiples. Unfortunately, the reverse can happen in a down economy.
There’s zero doubt that interest rates are going up this year. The Fed issued a 0.25 percentage point rate hike in March, the first increase we’ve seen since late 2018. But more increases are coming, perhaps even monthly, in the year ahead.
Steven Chiavarone, CFA and economist with Federated Hermes, presented at our annual State of M&A conference held in Green Bay. Chiavarone spoke to the conflict and other economic indicators likely to affect mergers and acquisitions in the years ahead. Specifically, he addressed inflation and the risk of recession.