5 Reasons why business owners should speak to an exit advisor

To understand what factors drastically affect a businesses value
To learn what drives a businesses multiple
To uncover what value their business might have
To identify what factors need to change, to lift the value
To create an ideal exit outcome

Let's dive into what this all means below.

Section I - How businesses are valued

The most common method to value a business is known as a ‘Multiple of Earnings Valuation’.

This is where average net profit is multiplied by a number called a ‘multiplier’ to come up with a business:

Example:

Average Net Profit: $600,000

Determined Multiple: 2

Business Value: $1,200,000 ($600,000 x 2)

The multiplier number used is determined on a case by case basis.

It is a combination of things that are out of an owner’s control like recent sales in the same industry and things that are in owner’s control which we’ll break down in the next section.

The purpose of exit planning is to address everything that is an owner’s control BEFORE going to market.

Section II - Factors That Impact A Multiple

A multiple is an assessment of how likely a business is to continue to deliver financial returns into the future.

The more risky future revenue is, the lower the multiple is that a buyer would be willing to pay.

Risks are considered across all facets of a business with some common ones being: