How buyers value 10 million dollars to 100 million dollars revenue businesses

Business Valuation 101: How Buyers Value $10M – $100M Revenue Businesses

Most buyers of healthy businesses that sell between $5M – $50M base their valuation on a Multiple of Adjusted EBITDA. EBITDA stands for Earnings Before Interest, Tax, Depreciation, and Amortization, and while it is not a perfect metric, it is commonly used by buyers or investors to measure a company’s financial performance. To determine Adjusted EBITDA (step one), we start with net income before taxes, then add back depreciation, and interest expense, and then ‘normalize’ financials, adjusting for owner compensation, one-time/non-recurring expenses, and other owner personal expenses.

In step two, we determine the industry multiple.  EBITDA multiples vary by both the size of the company and industry, with buyers paying premiums for larger companies. EBITDA multiples also vary by industry; the higher the typical industry profit margin, the higher the multiple, with 4-6X EBITDA being a typical range for a $1M EBITDA manufacturing company, for example.  The multiple is essentially a measure of risk, as companies with higher earnings certainty sell at higher multiples.

Typically, the multiple for any given transaction is determined by comparing the target company to recent comparable transactions within the same industry (M&A professionals subscribe to databases that provide transaction data.)  We use both quantitative (e.g., transaction comparables) and qualitative factors (see table) to help determine a probable range. For example, if a business has a long track record of successfully increasing revenue and profits and has a strong competitive advantage relative to its peers, the multiple will be at the high end of the range. Conversely, if buyers perceive risk related to future earnings, the business will likely sell at the lower end of the multiple ranges.

Multiple of Adjusted EBITDA

In step three, we multiply the Adjusted EBITDA by the multiple ranges to determine the probable valuation range.  We then make subjective adjustments, which could increase or decrease the multiple, considering the following factors:

  • Trends in sales and profits
  • Industry growth potential and the company’s relative position in the industry
  • Reliance on specific customers, employees, products/services, or suppliers
  • Depth and quality of the team
  • Deferred maintenance (equipment nearing/at end of life)

Of course, there are many other factors that will determine the ultimate sale price. These commonly include the buyer/seller motivation, deal structure, working capital included in the deal, the extent of buyer competition in the process, transferability of agreements, the mix of recurring vs. one-time revenue, profit trends, etc., just to name a few.

Determining the value of your business is a relatively straightforward exercise once you understand the process and can appreciate the buyers’ perspective.  If you have any questions on how buyers would value your business, let’s have a confidential discussion. Download our free valuation guide at www.kinected.com.


Kevin Berson is a licensed Business Broker with Kinected Consulting and is based in Los Angeles, CA. He specializes in helping business owners of lower middle-market companies ($1M-20M transaction value) maximize outcomes in selling their businesses. He is also the founder of Kinected, a management consulting firm that advises companies with business development, strategy, and merger and acquisition diligence. Kevin can be reached at kevin@kinected.com.

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