The Valuation Scorecard

Re-cap on multiples

Using a valuation 'multiple' is the most common way to quickly value a business for acquisition. It’s a multiplier applied to your company's financial metrics (most often EBITDA, but could be others) to get its value.

A buyer will pay a higher multiple – a higher price for the same financial performance – if they are confident the company will keep performing well rather than starting to decline.

Key factors include your financial performance and growth rates, the nature of the buyers, the health of the industry and wider economy, benchmarks from recent sales and risk factors.

Multiples can vary wildly. If you are a safe bet to keep growing, increase profits, defeat competition, increase prices, keep key team members and avoid pitfalls around tech, IP or tax…the valuation multiple will be much higher.

See the links at the bottom of this page for further reading.

Introducing the Valuation Scorecard

If you’re planning on selling your business, or have just received an offer, you will want to know what a fair valuation might be. 

So we’ve created the Valuation Scorecard. 

How it works

Rate your business against the top 16 factors that buyers are typically looking to see when valuing a business. These are broken into five categories: Financial, Buyer, Market, Risk and Other.

In nearly all cases, you will have some factors in your favour and some against. It's a see-saw of positives and negatives.

Your responses are then scored and aggregated to generate a Valuation Score out of 100% for your business. A higher score means you're likely to get a higher valuation.

Interpreting the results

Your Valuation Score will give you a ballpark for what valuation range you might be in.

We use the following rules:

🚀 Valuation Score 80-100%: Very High, 15+ times EBITDA
🟢 Valuation Score 60-80%: High: 8-15 times EBITDA
🟠 Valuation Score 40-60%: Medium: 4-8 times EBITDA
🔴 Valuation Score 20-40%: Low: 2-4 times EBITDA
⛔️ Valuation Score 0-20%: Very Low: Less than 2 times EBITDA

If you have many of these factors in your favour, you can expect a valuation multiple towards the top of the range. But if you're struggling to show many of these you should prepare yourself for a lower multiple.

There's another benefit. This exercise acts as a mini audit to see how a buyer might evaluate your business. You can use the Strengths as key benefits to promote in discussions with buyers, and start considering how to manage where you are Weak.

We hope it's a useful prep exercise as you start readying yourself for an exit.

Disclaimer

This is a theoretical exercise designed to give you a generic benchmark.

They don't take into account your specific business situation.

In the real world, valuation ranges are extremely wide and there are many outliers.

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 or have received an offer, consider some of the tactics in 'How to get a real-world valuation of your business' get a more accurate idea of what your business is worth.

Further reading

These other articles from Bizma will fill in your understanding of valuation and multiples.

👉 What are valuation 'multiples'? A primer on how valuation multiples are calculated and when they are used.

👉 What multiple should I expect when selling my business? Benchmarks for what valuation multiple you should expect on your exit.

👉 How to get a higher exit valuation. A deep dive into the factors that drive higher valuation multiples, and actions to increase yours.

👉 How to get a real-world valuation of your business. Four actions to get a more concrete idea of what you could actually sell your business for.