You as a seller have figured out what the market multiple is for your company. So, you apply it and have an asking price for prospective buyers and go to market. But wait, there is more to just the market multiple in business valuation. Let me introduce you to Single Pittle, which is long for SGLPTL.
Let’s look deeper.
Size – size matters, the bigger the company higher the valuation, like revenue, SDE, EBITDA, employees.
Growth – growth is the only driver of value that has the capacity to overshadow that of size when it comes to value, you have to look at the market growth of the industry that your company is in.
Leverage – SBA vs. Cash/Owner financing, Buyers have better leverage going with SBA than owner financing. Buyers are willing to pay more with SBA (putting down 10-20%) vs. putting in more cash up front with owner financing.
Profitability – Not just profitability of the business itself but also exterior factors affecting the profitability of the business, for example industry, multi-year client contracts, location, barrier to entry, IP.
Turnover – total tangible assets in relation to the annual revenue, how effectively are the assets of the company utilized.
Liquidity – cash situation of the company, more the better.
So, a market multiple is not enough in business valuation. For an accurate price a market multiple and the entire Single Pittle needs to be considered.
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