Trying to sell a house can be easy or hard. The hard way is avoid routine maintenance, fail to make improvements, not be aware of the market, not decluter and otherwise stage the home for sale and not to be willing to negotiate. The easy way is...well, I'm not in the realtor business, so the truth is there really is no easy way to sell a house. But selling a house or a business is a process and can be planned. That's why B2B CFO has a system called Finding the Exit to help business owners get ready for a sale. It's also good to get a an idea of what price you can expect.

The best way to know what your business is really worth is to cast a wide net to potential buyers when marketing your company. Creating a competitive bidding process - while maintaining confidentiality - is ultimately what drives price.

However, there are benchmark valuation ranges that are typically used in the middle market segment of the merger and acquisition industry. For the most part, buyers express their bids for operating companies as a multiple of "Adjusted EBITDA" or "Adjusted Operating Profits." Adjusted EBITDA is: Earnings before Interest, Taxes, Depreciation and Amortization. The adjustments factored in include normalized management compensation, fair market rent for real estate, one-time or extraordinary expense events, significant G&A expenses for growth where the benefit has not yet materialized, and normalized fixed asset investments required to maintain the integrity of the business.

Think about it...if you were purchasing a business, you would want to know how much of the company's cash flow would "stick in my pocket." The important thing to remember is that the larger the adjusted EBITDA, the larger the multiple. There are fewer larger companies than smaller companies, so the larger ones are more in demand, and buyers will pay more. In addition, larger companies are less vulnerable to changing business conditions than smaller companies. Notice we're focusing on profits here, not revenue.

For businesses generating between $1 million- $5 million of adjusted EBITDA, the multiples we see at closing range from 3x - 7x adjusted EBITDA. For businesses generating between $5 million-$10 million of adjusted EBITDA, the multiples range from 4x - 8x. There could be more value based on contingent payments regarding future performance, however when we quote multiples we stick with what the owner(s) are likely to see at closing. There could be small amounts in notes, but 70% - 100% of the value, based on these multiples is obtained in cash.

Remember: You may receive an unsolicited offer for your company in the above value ranges, however without running a competitive process; you will not be able to compare offers to understand how much of the value will be cash at closing.

Factors impacting the multiple include the type of business, historical and potential growth, competitive position or uniqueness of the company, composition and diversity of customer and supplier bases, management infrastructure and capacity.

Finally, once you've decided to sell, act like you're not! Focus on the business as if you're going to hold onto it for another several years. Keep up the sense of urgency. Continue to pursue new opportunities and make prudent investments - don't cut any cash outlays that will impact long-term performance because seasoned buyers will pick this up in due diligence. The picture you want to paint is that of a viable growing business that doesn't need to sell.

( B2B CFO ^{and The Woodbridge Group Inc. have formed a strategic alliance. The Woodbridge Group is an international Mergers and Acquisitions advisory company specializing in the sale of businesses with revenues of $5-100MM. This is how they would go about placing a value on your company. Of course, a company with a B2B CFO is likely to start the process with a much higher EBITDA...)}