🟠 Valuing small and main street businesses

How do you come up with a price for a small business?

April 03, 2023

Let's chat about valuation of small businesses under $2M of EBITDA today with the SMB Scoop.

1. The acquisition multiple when buying a business is extremely critical if you plan to use debt financing. You have to be able to service your debt obligations. This graphic gives you a clear range of purchase multiples in the comfort zone of 1.5x to 2.0x debt service coverage ratio (Prime rate was at 7.0% when this tweet was written -> today it's 8.0%):

2. Many small and Main Street businesses (<$1M of EBITDA) are marketed based on Seller's Discretionary Earnings (SDE). I'd encourage you to always identify what real 'cash flow' is rather than using SDE from the start. Cash flow many times tells a very different story than SDE. Here's how you get to cash flow when presented with SDE:

3. 'Main Street' median SDE multiples from BVR (<$1M of EBITDA). Mostly reported from brokers that are CBI's and M&AMI's.

Investors: Want to invest passively as an LP in cash flowing SMB deals? Accredited investors can apply for the Cash Flow SMB Investor List here.

SMB Acquirers: Have a deal under LOI and looking to raise capital? Reply to this email, and I'll send you info on how to apply to get distribution to the 375+ accredited investors on the Cash Flow SMB Investor List.

Ben Tiggelaar