Valuing a Business: Multiples, Schmultiples!
Valuing a business is fun and exciting! It must be because we hear from business owners all the time how easy it is.
“How much money will this business put in my pocket?”

- What rate of return do I want?
- How quickly do I want the business to cover the acquisition costs?
- How steady have the margins been and have they been trending up or down?
- What are the risks to the business that will impact its ability to perform as projected?
We’ve launched a coaching program specifically tailored to Realtors that want to sell businesses, business owners and to anyone that wants to become a business broker.
If you’d like to learn more, email me at joe@WorldwideBusinessBlog.com
Adjusted – or “True” – Earnings
It is extremely rare that the true earnings of a business are shown on the P&L statements or tax returns. There are two primary reasons for that:- Accounting methods used by many private businesses are structured to minimize the tax liabilities faced by the owners and;
- It is fairly common that owners of such businesses run certain expenses that are, in reality, “owner benefits”, through their business.

_____________________________________________________________________________
Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to value and sell businesses.
Become a Professional Business Broker…
The first is to determine what similar businesses have sold for; that is, what was the multiple of Discretionary Earnings did the sale prices of those other businesses represent? The second is to determine what adjustments have to be made to that range of multiples – or to the results of applying that range of multiples – to the Discretionary Earnings of the business you’re valuing. Multiples are important in our business. But we have to know what they are, how to use them and what to apply them to. And the last part of that statement is the most important. Applying any multiple to the wrong base number – the bottom line on the P&L, the top line on the P&L, the “taxable income” line on the tax return will, as a rule, give us just as accurate a value as applying it to the attendance figures for the upcoming Tokyo Olympics – which is to say, not accurate at all.The Bottom Line
Applying any multiple to the wrong base number – the bottom line on the P&L, the top line on the P&L, the “taxable income” line on the tax return, etc – will, as a rule, give us just as accurate a value as applying it to the attendance figures for the upcoming Tokyo Olympics – which is to say, not accurate at all. Although when valuing a business the two main factors – adjusted (or discretionary) earnings and the appropriate multiple – in the valuation calculation are easy to identify conceptually, getting both of these numbers correct takes knowledge and time. But without correct numbers to start with, what’s the point? Professional business brokers – or Realtors that want to add business brokering to their arsenal of services – have to know how to do this – and how to explain it to our selling clients. If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast. I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com