So I'm thinking about selling my small manufacturing business (we do custom cabinetry, 12 employees, been running for 18 years). I keep hearing different numbers from different people about what it's worth. One guy says 3x EBITDA, another says 5x. A broker told me my customer list alone is worth six figures. Help me figure out how to actually calculate this before I talk to anyone serious. Don't want to get lowballed.
Valuation
how to calculate how to sell a business
First off, ignore anyone quoting multiples without knowing your industry and size. Custom cabinetry is not SaaS. What's your EBITDA look like the last 3 years? That's your starting point.
The customer list thing is nonsense in most cases. They're not paying for names, they're paying for recurring revenue. If your customers come back every year, that's different.
EBITDA for last 3 years: 210k, 245k, and 270k. Roughly. We own the building though, which I know complicates things.
Own the building? That's a separate asset. Don't roll it into the business valuation. You either sell the real estate separately or lease it back to the buyer. Get a commercial appraiser for that.
^ this. And get an actual valuation from a CPA or M&A advisor who has done deals in your niche. Not a generic business broker.
Also, add back your own salary and any personal expenses you run through the business. That "adjusted EBITDA" is what buyers care about.
Good point. I'm paying myself 120k and my wife's on payroll for 40k (she does the books, so not totally bogus). And we have a truck that's technically for "business" but I use it for fishing trips.
Lol the fishing truck. Don't put that in the data room unless you want a buyer to nicmle and dime you on every personal expense.
Honestly, for a business your size, the multiple is usually 2.5x to 4x adjusted EBITDA. Cabinetry might be on the lower end because it's labor-intensive and not super scalable. But if you have strong recurring contracts with builders, bump it up.
Also think about what you're selling. Asset sale vs stock sale. Most buyers want asset purchases to avoid liabilities. That affects what you walk away with.
And working capital. Buyers expect you to deliver a certain level of inventory and receivables. Don't sell all your cash out and leave them dry.
So adjusted EBITDA is maybe 270k + 120k + 40k - some personal stuff? Say 400k adjusted. At 3x that's 1.2M. Plus building? That feels low for 18 years of work.
It's not about years of work. It's about transferable earnings. If the business Collapses without you, the multiple drops. Do you have a management team in place?
TinyWalrus asking the real question. If you're the only one who knows how to price jobs, buyer will see that as risk. Start delegating now, even if you sell in a year.
Also, get a professional valuation. Seriously. 1.2M might be right, might be way off. A proper valuation is 5-10k and and saves you from leaving half a million on the table. Or from pricing yourself out of the market entirely.