I run a small manufacturing supply company with about 12 employees. Revenue around $2.1M last year, EBITDA roughly $380k. I tried one of those instant online valuation tools that asks for a few financial inputs and spits out a range. It came back with $1.1M to $1.4M. Honestly that feels low to me. I know I'm not a tech company, but we have recurring contracts and a solid customer base. Has anyone else used these tools? Did the number match what you eventually sold for, or even what a broker told you? Just trying to figure out if I'm way off in my expectations.
Valuation
My experience plugging my numbers into an automated valuation tool
Those tools are basically a starting point, nothing more. They usually rely on industry multiples from aggregated data and dont account for your specific customer concentration, contract terms, or equipment age. I wouldn't put much stock in the low end.
I tried one for my landscaping business last year. It gave me a range that was about 30% below what two different brokers quoted me. The automated tool didn't ask anything about recurring maintenance contracts, which is a big part of my valube. So yeah, take it with a grain of salt.
What multiple did it imply? 380k EBITDA on 1.1 to 1.4 is roughly 3x to 3.7x. For a small manufacturer with contracts that might be low, but depends on how dependent you are on your top customer
Also, those tools often use a discount for lack of marketability and other adjustments that a real buyer might not apply in the same way. They're built for a quick ballpark, not a real negotiation.
I used one of those before selling my HVAC company. It was way off. The tool said $700k to $900k. I ended up selling for $1.6M. The tool didn't know about my service contracts or the fact that I had a waiting list of customers. I think they are mostly useful for people who have no idea where to start.
Rusty, that's a huge gap. Did you have to do a lot of work to get that higher pricE? Like did you have to clean up your books or something?
Yeah, I spent about six months getting my financials in order and separating personal expenses. Also had to show that the business could run without me. But the tool didn't ask about any of that. It just took my revenue and profit numbers and applied a formula.
I think the key is that these tools are not designed to give you a true market value. They are designed to give you a rough estimate based on industry averages. If your business is above average in any waay, the tool will undervalue it. If it's below average, it might overvalue it. It's just a math exercise.
Have you talked to a business broker yet? Most will give you a free opinion of value. That would be more useful than the online tool.
No, I haven't talked to a broker yet. I wanted to get a sense of things first. Sounds like I should ignore the tool and get a real opinion. Thanks for the input.