What a Business is Worth

Sellers want to know what their business will sell for. They must determine what their EBITDA actually is.

1. The definition of EBITDA is as follows: earnings before interest, taxes, depreciation, and amortization and is a metric that allows you (and potential buyers) to value your company based on cash flow.

It also makes it easier to compare your business with others in your industry that might be subject to different tax and depreciation rates and debt levels.

First, calculate your EBITDA. This involves adding back into your net profit items such as interest expenses and taxes. Then find out what multiples of EBITDA other similar size companies in your industry have sold for. This information is generally available through qualified Business Brokers as well as trade associations.

Remember the multiples you find are only recommendations and to be used as comparables. Your company will very in different ways, whether it is your management style, management in place, number of employees, length of time the business has been established, years you have owned the company and what part of the country your business is located in (Florida, California, Chicago etc.). This criteria will be part of the determining factor in what your companies offering price will be.