WHAT IS YOUR BUSINESS WORTH?
This is what every business owner wants to know! And I’m sure you’ve heard “there are just so many factors it’s hard to say.” While I agree with this, I will simplify how we approach valuation. The basics are:
EARNINGS x MULTIPLE = VALUATION
Earnings is referred to as either EBITDA or SDE, depending on the calculation. Ultimately, we are just trying to figure how how much your business will be making under our ownership.
STEP 1: THE EASY ADDBACKS
Start with Net Income (usually easy to pull from your P&L)
+ Interest (you will pay off any debt at close, so we add this back)
+ Income Taxes (if any, as this is unique to each owner)
+ Depreciation & Amortization (these are non-cash items)
= EBITDA before Owner Addbacks & One-Time Expenses
STEP 2. Adjust for Owner Expenses and One-Time Expenses
Start with EBITDA above, then
+ All owner payments, including W2 wages, payroll taxes, and 1099 payments made to you
+ All payments for those not involved in the business (e.g. family members not working in the business)
+ All owner expenses that would not continue post-sale (e.g. auto expense, meals and entertainment, cell phone, etc.)
+ Any large, one-time expenses that are on your P&L
- Any payroll expense, including payroll taxes, that would be needed to replace the hours you (the Seller) are working at the kennel.
= SDE or Seller Discretionary Income
Step 3: Apply a Multiple to Calculate Value
Typical Multiple for an individual kennel is 2.5-3.0x SDE. Unless you have already hired a broker on your end, we will never charge you a broker fee for the transaction.