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How do I know what multiple is right for our company?

It's a smaller owner operated service based business.

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Answers (5)
Fayaz Karim, MBA, CA
Subway Valuations, Business Searches
Orange County, CA

Get a valuation done for you company. This can be a full blown valuation or a valuation "opinion" for far less. A Valuation will help in setting a price, and when negotiating with a buyer for Cash flows, Valuations, Second opinions

Nov 10, 2011
William A. Price
Business Lawyer
DuPage County, IL

Don't put a price on the deal, start selling your product and see what the market tells you. Talk to every other carpet cleaning franchise owner and shop owner in a 200 mile radius, with an accountant verified set of financials and a bit of additional information on the business advantages of your location, staff, technology, loyal and large customer base, etc.... This might draw some good offers. Once you're done, start again with related businesses and executive job clubs or other sources of possible buyers. Hire a business broker with a good track record for a few months, if this doesn't work, then hire another one -- or grow the business internally, hire a partner or manager that could finance a buyout, and sell it to him or her with business cash flow devoted to "key man" insurance premiums, so your beneficiaries get tax free money, or from future cash flow in an earn out under a buy sell provision that covers your retirement or disability. Or, if no one manager is available, sell the place to all the employees in an ESOP. You get tax deductions and favorable sale tax treatment, and they can hire you back as manager if they don't know how to run the place. Or you can hire yourself back, since you can make yourself ESOP trustee.

In other words, treat this sale as a business proposition. Hire the best experts you can afford to cut your costs and tax liability, but remember that you're the chief salesperson for the company.

Hope this helps,

Bill Price

William A. Price
Attorney at Law

Nov 5, 2011
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The BAF Group LLC

While I understand your conservative perspective, Broker's fees are normally a percentage of the sale. Unfortunately, the smaller the business, the less the Broker earns in terms of dollars and cents; and it can take as much work to promote, negotiate and sell a very small business as it can to do the same for a larger entity, so negotiating a lower commission rate may or may not be possible. But if you list, or intend to list your Company with a Broker, he/she will frequently provide you with a pricing model as part of the overal service they offer. In the vast majority of cases, there is no up-front charge for that kind of service.

On the other hand, you may want to pay someone just to price the business for you. There are a number of companies out there that will charge obscene amounts of money for that kind of work. It should not be too terribly costly for someone to do what you want, in a modest way, but you may have to shop around. And get references! You want someone that really knows what he/she is doing.

Good luck!

Oct 11, 2011
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Dane County, WI

We are a carpet cleaning company. We have been in business for 6+ years. We have shown continued growth (12% this year alone). As a smaller business we hesitate to spend so much on broker fees but are unsure how to establish an asking price.

Oct 11, 2011
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The BAF Group LLC

Not knowing the Company, the exact type of services you offer, the way you attract clients, how they are or if they are maintained, the branding (if any) that is involved, the margins you have...lots of is impossible to say. Some goof will write in and tell you "2.5 to 3", but that is a garbage way to sling out a quick answer, that is in fact meaningless.

Moreover, multiple of what? To tell you a multiple is faulty, even under better circumstances, without knowing what you are measuring. In Restaurants or Motels, you might use a multiple of Revenue. In other businesses, you might use a multiple of SDC or EBITDA. But even then, how are you measuring those particular numbers?

Finally, I would say that using multiples is a methodology that is high in potential for inaccuracy, anyway. For our purposes, multiples can be used only as one of two or three methods that you cross-check against each other. Multiples alone have proven to be so erroneous in some circumstances that they are virtually useless.

The best thing to do is to let someone go through the long process for and with you. Trying to get a short answer can build or dash your hopes, very quickly.

Oct 11, 2011