Most SME owners who were planning on selling their business in early 2020 were forced to put their plans on ice when the pandemic hit.
Is It Time to Sell Your Business in a Volatile Market?
Since the markets have been as bumpy as a rollercoaster, some small‑enterprise owners have felt the chill in their pockets, while others have been riding the high tide. If you’ve watched the numbers and feel the wind shifting beneath your feet, you might be asking yourself: should I now grab the opportunity and take the plunge?
Why You Should Get the Numbers Early
- Don’t Wait Until the Chaos Escalates. The sooner you know what your shop is worth, the better you can strategise.
- Keep It Simple. Most owners think the valuation process costs an arm and a leg, but that’s simply a myth. With a clear, straight‑forward approach, it’s more like a walk in the park than a hike on a mountain.
- Get Real About the Value. Knowing your business’s worth means you can negotiate with confidence instead of guessing in the dark.
Pricelessness of the Business: The Financial Reality
Your venture’s worth is basically the current value of the future cash that its operations will generate. For small businesses, the go‑to yardstick is EBITDA – that’s earnings before interest, taxes, depreciation, and amortisation. In layman’s terms, think of it as the clean, real earnings that the company actually brings in.
Why EBITDA?
- More Trusted. It strips out the noise (interest, tax, depreciation) so you see the pure profit.
- Cash Flow Indicator. Revenue equals the cash that flows into your business, which matters most when you’re looking to monetize.
- Widespread Use. Dealmakers and investors love it because it gives a comparable, universal snapshot of a business’s financial health.
How It Works
Think of it like a weather forecast: you use yesterday’s data to predict tomorrow’s clouds. Similarly, most valuations multiply a company’s past EBITDA or projected future EBITDA by a market‑derived factor. That factor is a way of saying, “if a similar shop sells for ten times this amount of earnings, that’s what yours should fetch.”
Key Takeaway
If you feel the wind of uncertainty nudging you toward a sale, it’s worth aiming to keep the process straight and simple. Get the numbers early, understand what your EBITDA tells you, and you’ll be set up to strike the right deal – no juggling flaming swords involved.
Calculating EBITDA multiples
How to Nail Your Company’s Value Using EBITDA
First, you’ll need a solid EBITDA figure – that’s earning before interest, taxes, depreciation, and amortization. Think of it like the gross mood rating of your business.
Step 1: Hunt Down the Market Multiples
Put on your detective hat and poke around the public exchanges tuned to your industry. Look at what salespeople are offering for companies just like yours – usually expressed as a “x‑time” multiple of EBITDA. For a quick peek, you can also tap into Pomanda, the handy platform I chair.
While you’re at it, maybe give an accountant a shout or chat with a finance guru for that extra “yes‑you’re right” vibe. But first, get your own research in order – it’s empowering and makes negotiations less guesswork.
Step 2: Apply the Multiple
Once you know the range—say peer firms are trading at 7‑12x—plug your numbers into that range. This will spit out a valuation window for your own company.
Three Things That Move the Needle
- Confidence in Your EBITDA: If you’re shopping the historic data, be crystal‑clear about every cost and justify dropping any one‑off expenses. For future forecasts, the closer you are to hitting those numbers—and keeping your budgets in line—the more buyers will trust you. Remember, a retailer’s Christmas bump isn’t just a ticker. Show that the holiday sales actually show up before you claim the forecast.*
- Growth Rate: High growth wins higher multiples. Look at your competitors’ projected growth. If they’re shouting 10% yearly growth at a 7x multiple, and you’re brand‑new at 15% growth, you’ve got a good case for a heftier multiple. Think of it like showing up to a dance party with a fresh footwork style—others will pay for that.
- Liquidity: Public companies whose shares are easy to buy and sell enjoy higher multiples. Private SMEs are trickier, and that’s where the “liquidity discount” comes into play—usually 20‑30% off the market rate. So if peers are at 10x EBITDA, you might realistically land in the 7‑8x territory after the discount. It’s not a loss; it’s an honest reflection of the market’s appetite for ownership.
Bottom Line: Do Your Homework, Show Your Credibility, and Keep It Real
By selecting the right multiple, dressing up your EBITDA with confidence, highlighting faster growth, and accounting for liquidity, you’ll set a realistic yet aspirational valuation. Then you’ll be ready to sit down, negotiate, and walk away with a deal that reflects your business’s true worth—and maybe a few laughs along the way.*
Calculating your Net Debt level
Bootstrapping a Pink Widget Empire
Picture this: your pop‑pink widget startup has a tidy £2 million in EBITDA, and analysts are chanting the same magic number for every serially‑successful tech venture—7× EBITDA. Multiply that and you’re staring at a sweet £14 million Enterprise Value. That’s your business’s worth before you bring in outside cash.
Putting the Pieces Together: Net Debt, Equity, and Storytelling
Now let’s slice to the core. Net debt is basically a quick subtraction:
- Short‑term bank debt + finance leases
- + long‑term bank debt + finance leases
- – cash & cash equivalents
So if your net debt sits at £1 million, your equity value—what the final buyer actually pays—falls to £13 million. That’s the figure every potential acquirer will look at, head‑on.
When Competing Buyers Show Up
Now, a real thrill is when two or three suitors start curting each other’s toes. In that case, don’t be shy about demanding a kicker. A motivated buyer will often throw in a premium, because if you’re thinking along the fair‑market line, you’re putting the ball in their pocket. But here’s the catch: if you set the opening price too high, those very buyers might scramble and call it quits before you even meet for lunch.
The “Sweet Spot” Advice
Keep it simple, keep it honest, and keep your numbers crystal clear. Let your process be as transparent as a clear glass crate so that friends, family, and rivals can see your true value proposition. Pick a realistic base and let the bids climb from there; that way you’ll avoid a scornful scramble and end up with a genuinely competitive price.