EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. Using a company’s EBITDA allows an experienced business broker to answer the question, "How much is a business worth?" and develop the fair market value of a business. EBITDA allows for the elimination of non-operating costs that are unique to each business, while also allowing you to focus on a company’s operating profitability to measure its performance and therefore value. Using EBITDA can be particularly important when trying to compare businesses across a variety of industries or tax brackets.
So now that we answered the question what is EBITDA? Let’s talk about how we use it to value your business for sale. With the EBITDA in mind, a broker will look at the qualitative factors of a business like its location or whether or not the owner is absent from day-to-day operations as well as similar, recently sold businesses. This qualitative data is used to develop a multiplier for the business which is then multiplied by the EBITDA to reach a fair market value.
Ultimately, this process may sound simple and you might even like to try developing the value of your business on your own. But remember our mention of the qualitative factors - that is the difficult part and requires the trained eye of a transactional professional to evaluate and identify correctly. At the end of the day, the difference between a business sold and business still listed for sale is the price!
EBITDA X MULTIPLIER = FAIR MARKET VALUE
If you are ready to identify the value of your business and learn how to sell a business, we invite you to head to the Price Opinion section of our website or schedule a free consultation with one of our business brokers today!
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Rachael Holstein joined the Transworld Team in 2016 as Marketing Coordinator. Her working experience has been largely focused on Business Development and Marketing in the finance, architecture, property management, and information technology industries. A long time resident of Cleveland, Ohio, she attained her Undergrad from John Carroll University and a Master’s Degree in Global Interactions from Cleveland State University. She relocated to Denver in 2013 for a change of scenery and a bit of adventure.
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