How businesses are valued
Businesses are most commonly valued using the following basic formula:
Average Net Profit x Multiple = Value
For a manufacturing business netting $1m per year this may look like:
$1,000,000 x 3 = $3,000,000 Value
I know what you're thinking, great formula but what multiple number do I use? 🤷
The answer – it’s different for every business.
A multiple is a combination of industry demand AND business characteristics.
What I can tell you is that the number multiple used has a MASSIVE impact on business value.
Enter your average net profit below and you’ll see what I mean.
As you can see, the multiple used has a significant impact on value.
The great news?
A multiple can be improved in any business, including yours! 🙌
This is the core purpose of exit planning - to increase your multiple in the months leading up to selling your business so that you can secure the best price possible.
To make sure that after years of blood, sweat and tears, you get the rewards you’re due.
Click here to jump back up to the calculator again to see how much difference this can make.
What you can do to increase your multiple
While there are many things you can do to increase a multiple, we have found the following four areas deliver the biggest ‘bang for your buck’:
Team
Removing yourself & empowering management
Systems
Documenting & automating the day to day
Finances
Making your numbers attractive & presentable
Customers
Diversifying & securing your customer base
How we help at Morgan Exit Advisory
You now know how valuations work and what you can do to increase your multiple so you can sell for more.
The only thing that's left to do is take action.
Unfortunately this is where most business owners struggle.
They see the value of exit planning, they know it makes sense, but they haven't got the time, energy or knowledge to do it. So they shrug their shoulders and sell for whatever they can get.
As business owners too, we get it.
But it really sucks.
To come so far only to settle for less at the end.
So we decided to do something about it.
To create a way to make taking action easy.
We call it the Morgan Exit Advisory Value Accelerator.
It’s a program that makes exit planning a no-brainer for every business owner.
Where we work with you to systematically improve your multiple before you go to market.
The follow graphic sums it up nicely ⬇️
- Stuck running your business
- Have a small but loyal team
- Have annual revenue over $1m
- Are thinking of retiring within 5 years
Then it’s highly likely we can help you. Join the waitlist today.
Happy exit planning!
Chris Herbert
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