How to get a real-world valuation of your business

In 'What multiple should I expect?' we run through typical valuation multiples and the factors that put you into each range. Take a look if you haven't already.

If you're new to valuation multiples

If you are new to this, I would recommend having a read of two other articles first too, where we dive into the topic of valuation multiples and how they are used to set a price for a business.

Firstly, in 'What is a 'multiple'?' we explain how multiples are calculated and what financial metrics are used.

Then, in 'How to get a higher multiple when selling your business' we dive into what drives a multiple higher and the actions to maximise your multiple.

The problem with benchmarks

The figures in the article above are generic benchmarks, that don't take into account your specific business situation. And the ranges are wide: excluding outliers you might be looking at a price from 4 to 15 times EBITDA.

You also have a bias. Owners always think their business is worth more than it is!

So, if you're serious about selling your company, you should do some work to narrow the range and get a more accurate idea of what your business is worth.

Here are some actions you can take. They increase in intensity, depending on how serious you are about a sale.

Let's dive in.

1) Desk Research

Start my having a look for recent deals in your industry where the acquired company shares some characteristics with you.

You might even put them through the Valuation Scorecard, based on what you know, to see how the compare side-by-side with you.

The challenge is that the specific details you need to get the multiple are rarely published for small deals. You need both their recent financials and the acquisition price. But sometimes you get lucky, or can do some back-of-the-envelope calculations to get close.

Note that numbers are most often available for big public M&A deals, but these are not perfect benchmarks for much smaller businesses. But it's some data nevertheless.

2) Ask your network

You can ask around in your network to find owners who recently sold.

Post-exit business owners love nothing more than talking about their deal, so you shouldn't struggle to get them to chat.

But most will have restrictions on what they can say about the financial terms of the deal, which are typically included in the sale contract.

If you ask nicely they might give you an idea. You can give them some information about your business, and ask them questions like: "I'm hoping to sell for 8 times EBITDA, do you think that's reasonable?"

3) Speak to an Advisor

If you want to get a more concrete view on what your business is worth, speak to an M&A advisor. You want someone with a good reputation in your industry who has advised on recent deals for businesses similar to yours.

They will be keen for your business, so you should be able to get them on an introductory call without having to hire them first.

On that call, you can share some information about your business and test the water on what similar businesses they have sold recently and what the valuations have been. Push them to be specific, even if they can't tell you which particular deal the valuation relates to.

They will likely pitch you on a more formal piece of work where they do a full valuation of your business. They will ask for a bunch of information, dig around their networks for similar deals, and put a report together with the information. This may be paid for, or sometimes you can get this as a freebie.

4) Get some offers

Finally, the most aggressive option is to actually go to market and get some real offers for your business.

This gives you the strongest signal on what your business is worth. The other options are just hypothetical - this is real.

Don't do this unless you're happy to put in the work. You shouldn't speak to potential buyers unless you've prepared a great pitch and collated some basic information to follow up with. Looking disorganised and ill-prepared will be factored into the offer.

And you should be open to following up if the offer comes through in a range which matches your research from points 1-3. You don't want a reputation as a time-waster, especially if there are limited potential buyers.