May 15, 2020
Today's episode of the podcast, Robert Hirsch from Freedom Factory discusses "The Art and Science of Selling Your Business".
Listen to the podcast, watch the video, or read the transcript below.
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Transcript of Podcast
Probably the most frequently asked question that I get is how do you determine the selling price of your business? And the reality is its part art and part science. I'll go over some of the science, then I'll go over a little bit of the art, and again, experience goes a long way.
Coming back to the science part of it, some of the really easy pieces are are what's your earnings? Earnings is often expressed in EBITDA or your earnings before income tax depreciation and amortization. We convert that into seller’s discretionary cash flow for all of our clients. And again, when you're paying your taxes, EBITDA is a game of minimization. The discretionary cash flow is a game of maximization or accurately reflecting all the cash flow that your business generates.
You're also going to have things like industry multiples, and sometimes there's little nuance things like if your e-commerce business versus a fulfilled by Amazon business, you're going to get a really different multiple. So we want to make sure to position it the right way. Some of the other things, industry codes, we had a client and the name of their business was excavation.
Turns out that excavation companies are valued at two to two and a half plus assets. When I say two to two and a half, that's a multiple of earnings. Will construction companies of that size are about four and a half to five. And it turned out that although they started as an excavation company, over 80% of their revenues came as a construction company.
So we repositioned it and that helped the industry code. But whatever we do with all these numbers, we make sure to look at market comparable and what's the market looking like? What are the best sales that we can hang our hat on? How does a bank value it? Is it going to be an SBA type business? And now all of a sudden we're starting to get into the art.
My name's Robert Hirsch, and I'm the founder here at Freedom Factory. All we do is help entrepreneurs sell businesses. That's 100% of our life. When I wake up in the morning, I'm looking at market comps, I'm looking at sales, I'm looking at, okay, how do we maximize the sales price of our business and really work as a partner?
So. Whether you're a physical company that's been around for 20 years or a digital company that's been around for two, we're going to look at all the science and combine it with the art to help you maximize your sales price. Give us a, call it Freedom Factory today. I look forward to speaking with you soon.
Thank you so much for watching. Please like and subscribe and we'll see you soon.
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