by Kim Lavine
Looking for investors? Then how much is your company worth and how much equity should you sell in return for what amount of money?
Ask Yourself These Questions First
- What is your company's exit strategy?
- What is the value of your company today?
- Should you sell it, and if so, for how much, and when?
- What is EBITDA?
It's not Rocket Science, It's EBITDA
Depending of the kind of industry that you’re in, you only have to have net revenues of as little as $200,000 to have a company valued at as much as a million dollars for sale purposes. The only way to figure out a company’s worth is by utilizing the standard formula of EBITDA
EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization
A very general rule of thumb in finding the value of your business for sale purposes is to take the amount of cash left at the end of a fiscal year after all fixed, variable and miscellaneous expenses are deducted and before interest, taxes, depreciation and amortization. Multiplying this final cash number by anywhere from two to five times, depending on the industry you’re in, will tell you what the typical asking price for your company would be in the open market.
Typically, you need to have a minimum of two years of similar EBITDA figures before you could get the serious interest of investors or buyers. Don’t get too excited about EBITDA. As my Chief Financial Office likes to say, “You can’t put EBITDA in a bank.” In other words, it isn’t money until it’s cash.