An exit strategy involves developing a plan to pass on responsibility of running the business, transferring ownership and extracting your equity. It’s important you have an experienced team of advisors in your corner to help you navigate through the complicated process and anticipate upcoming steps in the process to ensure a successful transaction.
Whether you choose Lake Country Advisors or not, it’s important that you have a comfort level with your Advisor when selling your business. We do however, take our job very seriously – protecting our clients, and working in their best interest to leverage value up to get maximum value for their business.
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Exit Strategy FAQs
Two of the predominantly used types of “cashflows” are EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and SDE (Seller’s Discretionary Earnings). EBITDA is used more for businesses that have cashflows greater than $500,000, while SDE is typically used for businesses with less than $500,000 in cashflow. However, these are loose “rules of thumb” and other factors need to be taken into consideration, including any required adjustments, when determining what type of cashflow to apply in your valuation model.
The market multiples portion of the valuation equation revolve around identifying what the appropriate market multiple is. To determine the appropriate market multiple, valuation professionals look at other businesses that have recently sold in the same industry, that are close to the same size, and that are in the same geographic region. There are several other factors that should be used to calculate the appropriate market multiple to be applied, which can leave room for error. However, conducting the appropriate research and discussing with professionals can assist in identifying what the appropriate market multiple would be for your specific business.
Another valuation approach to determine the value of your business is known as the “Price/Revenue” or “multiple of revenue” approach. This is another value-based valuation formula if you are thinning “ I want to sell my business,” that requires calculating figures, just like the aforementioned “Market Multiple” method above. The multiple of revenue valuation method takes the total annual revenue, then multiplies it by a data-backed percentage determined by the industry benchmark. This benchmark takes into consideration other external factors, such as the economy and current situations of the industry. However, financial experts have argued that the multiple of revenue approach may not be the most reliable valuation method due to its lack of consideration of other crucial factors, with a tendency to overfocus on revenue. By and large, a company’s valuation should be determined by revenue, profit, and market demand and speaking to a professional.
Using Rules of Thumb valuation approaches are several simplified methods for business valuation with varying factors carried into the calculation. It aims to provide a ballpark figure of a company’s value, ultimately determined by the company’s placement in the market.
Generally, the rules of thumb come in two formats. One of the most commonly utilized rules of thumb to sell your business is taking a percentage of your annual sales. For example, if your total business revenue of your Wisconsin or Illinois based business is $5,000,000 and your current multiple in the market for your business is 50% of annual revenue, your business value would be $2,500,000.
While the earnings multiples is a widely used valuation method, most financial experts disfavor it due to the lack of business value drivers it takes into consideration. Unlike multiples of cashflows, where objective earnings add-backs can be factored into the equation, revenue multiples calculate fixed figures, whether sales or revenue. Since determining an accurate valuation for your company is a crucial aspect of selling your Wisconsin or Illinois business, choosing the appropriate valuation method ensures a seamless and successful transaction.
Lake Country Advisors is a premier M&A advisory firm with years of valuable experience, proven methods, and a vast network of buyers and connections in various industries. To ensure you utilize the best valuation method and acquire more cash at closing if you are thinking “ I want to sell my business in Wisconsin,”
please don’t hesitate to contact us.