How do I price your business for sale?

 How do I price your business for sale? By Sudarsan Pattabiraman (M&A Advisor) | 510.944.5616 | sudarsan@upclinch.com

An M&A advisor or business broker prices a business using a combination of financial analysis, industry comparisons, and strategic insights. The goal is to determine a fair market value that reflects the company’s current performance and future potential. Here’s how they approach it:

1. Financial Analysis

Advisors start by reviewing the business’s financials—profit and loss statements, balance sheets, and cash flow. Key metrics like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) provide a baseline for valuation. EBITDA is often multiplied by an industry-specific factor to estimate a potential sale price.

2. Valuation Methods

Common methods include:

- Market Comparables: Evaluating similar companies in the same industry and geography to establish a range of multiples. (Being close to eventual sale price identifies a maverick Advisor!)

- Discounted Cash Flow (DCF): Estimating future cash flows and discounting them to their present value. (Easier said than done, not for pros though)

- Asset-Based Valuation: Valuing a company based on its net assets, which is more relevant for asset-heavy businesses. (Large amount of Fixed assets makes a business less attractive for buyers / Private Equity companies)

3. Adjustments to Financials

Advisors adjust for non-recurring expenses and owner-specific costs, producing Seller’s Discretionary Earnings (SDE), which offers a clearer view of the business’s true profitability. Larger adjustments result in lower attractiveness for potential buyers

4. Intangible Assets

Factors like brand equity, intellectual property, customer base, and employee retention are considered, as these intangible assets can significantly impact value. Certified appraisals(for non-sale purposes) tend to overvalue these compared to Broker Opinion of value (for sale purpose)

5. Market Conditions and Growth Potential

External factors, such as market trends and industry growth, influence valuation. A company with strong growth potential or opportunities for expansion typically commands a higher price. Did you remember COVID times? some businesses  skyrocketed while others bottomed out in attractiveness.

6. Strategic Value

Some buyers may assign a premium to businesses that offer synergies, such as complementary products or vertical integration opportunities. Similar to a large retailer buying small firms to make their private label strategy viable.

Conclusion

By combining financial metrics, market data, and qualitative factors, M&A advisors ensure the business is priced accurately, maximizing value for sellers while attracting potential buyers.

Contact Sudarsan for planning and executing your perfect exit / strategic acquisition. Schedule time to unlock the business value and realize it for the benefit of you, your family and your community. 

Email:sudarsan@upclinch.com   Phone: 510.944.5616