Assets or initiatives that can drive your multiple higher

How to Increase Your Sale Price Blue Arrows Image by Mergers and Acquisitions

Decision Associates M&A can show you how to increase your multiple and the price your get for your business.

Assuming that your EBITDA is at least 12 percent, our experienced mergers and acquisitions experts know that following assets or initiatives can drive your multiple higher:

  • Proprietary product; this can increase the multiple by two to four
  • A diverse base of great customers or one to two customers who are almost impossible to get via the open market; this can move the multiple up by one or two
  • A strong management team that has clearly run the business day-to-day for some length of time; this does not necessarily add to the multiple, but the lack of it subtracts at least one (buyers do not want to buy a business and then have to hire key leaders)
  • Strong and effective sales structure and systems; if missing, subtract one

Other means to increase the selling price

  • Stop running expenses through the business, such as car, golf membership and insurances; these reduce profit and EBITDA
  • Set rent at a realistic market rate
  • Pay yourself no more than you would pay a CEO to run the business for you; excess compensation also reduces profit and EBITDA (you can take additional money as a distribution at year end)
  • Capitalize any purchase that can be, rather than expensing it

Decision Associates M&A knows that using these strategies for two or three years will result in consistent earnings and should improve your selling price substantially.

Specific advice for manufacturing companies

In our experience, most transactions for manufacturing companies are in the range of a 3X-4X EBITDA multiple. Therefore, the best way to increase your transaction price is to have good earnings.

For example, if your sales are $5,000,000 and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is 15 percent or $750,000, a multiple of only four yields a transaction price of $3,000,000. If sales were the same $5,000,000 but EBITDA is six percent or $300,000, even a five multiple delivers only $1,500,000.

To learn more about what you need to know about buying a business, contact Decision Associates M&A today.