Having trouble agreeing on a sales price. Business has been under current ownership for almost 10 years. First 9 there was no profit, year 10 the business is profitable. Seller feels ebitda based on last 3 years should be 5X. Anyone with experience here weigh in? Owner is also still hands on. Thanks. Pretty new to this.
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The price is what the market is willing to pay. How long are you willing to wait to get your money back?
What the seller. Wants should be pretty irrelevant to you.
You aren’t buying stress free income generation here, you will have to work at it. So If it was me I would be looking at 2-4 years ebit.
What I do afterwards to improve the position of the company is none of the sellers concern. If they were able to do it then it would be done.
Don’t let them guilt you into overpaying
EBITDA = BULLSHIT. It’s a formula that most corporations use to measure. But if you ask Charlie Munger he might disagree with ebitda.
You need to calculate real net. Look at his statement, revenue and his cost and whats in his expenses (the middle part)
and whats remaining.
How fast is it growing on the top line and bottom line? For one dollar in revenue increase how does that hit the bottom line? do you have long-term contracts and what is revenue concentration like among the top 10 customers? Top 2?
If you scaled two twice the size, how much fixed costs would have to be added ? Is that normalized for owners comp and if not, can you add that back in and make it as if a manager was in your place or whatever role you fill.
People will give you multiples for your industry, but that means nothing because it’s really about how your actual business grows and scales and what kind of risk it has.