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  • Writer's pictureMark Hartmann

One Tweak That Can (Instantly) Add Millions to The Value of Your Business 


A series of increasing stacks of US dollar bills arranged in a bar graph formation, symbolizing financial growth or profit increase.

One Tweak That Can (Instantly) Add Millions to The Value of Your Business 


If you’re trying to determine your business’s worth, consider what acquirers are paying for companies like yours today. 

A little internet research will probably reveal that a business like yours trades for a multiple of your pre-tax profit, which is the Sellers Discretionary Earnings (SDE) for a small business and Earnings Before Interest Taxes, Depreciation, and Amortization (EBITDA) for a slightly larger business. 


Obsessing Over Your Multiple 

This multiple can transfix entrepreneurs. Many owners want to know their multiple and how to jack it up. After all, if your business has $500,000 in profit and trades for four times the profit, it’s worth $2 million; if the same business trades for eight times the profit, it’s worth $4 million. 


Your multiple will profoundly impact the haul you take from the sale of your business. Still, another number is worthy of your consideration as well: the number your multiple is multiplying. 


How Profitability Is Open to Interpretation 

Most entrepreneurs think of profit as an objective measure calculated by an accountant, but when it comes to selling their business, profit is far from objective. Your profit will undergo a set of “adjustments” designed to estimate how profitable your business will be under a new owner. 


This process of adjusting—and how you defend these adjustments to an acquirer—is where you can dramatically spike your company’s value. 


Let’s take a simple example to illustrate. Imagine you run a company with $3 million in revenue and pay yourself a salary of $200,000 yearly. Further, let’s assume you could get a competent manager to run your business as a division of an acquirer for $100,000 per year. You could safely make the case to an acquirer that your company would generate an extra $100,000 in profit under their ownership. If they pay you five times the profit for your business, that adjustment can potentially earn you an additional $500,000. 


You should be able to make a case for several adjustments that will boost your profit and, by extension, the value of your business. This is more art than science; you must be prepared to defend your case for each adjustment. You must make a good case for how profitable your business will be in the hands of an acquirer. 


Some of the most common adjustments relate to rent (shared if you own the building your company operates from and your company is paying higher-than-market rent), start-up costs, one-off lawsuits or insurance claims, and one-time professional services fees. 


Your multiple is important, but the subjective art of adjusting your EBITDA is where a lot of extra money can be made when selling your business. 


 
Mark Hartmann - CEO of HartmannRhodes

Mark Hartmann is a three-time Inc 500|5000 CEO with a rich sales, operations, and leadership background in the insurance, financial services, and healthcare sectors. With extensive experience growing and selling his own businesses, Mark leverages his expertise to help owners grow and sell businesses valued at $1M —$25M. He’s earned a master’s degree in organizational change management from St. Elizabeth University and a graduate certificate in executive coaching from Columbia University. Mark’s professional certifications include Certified Mergers and Acquisitions Professional (CM&AP), Certified Business Intermediary (CBI), Certified Exit Planning Advisor (CEPA), and Certified Value Builder (CVB).

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