CALCULATE THE COMPANY VALUE

Adjusted EBITDA and Valuation Calculation (see page 59 of Exit Strategy Handbook) Beginning Value Latest Value
Last Updated:31 Dec 2013 Last Updated:31 Dec 2014
EBITDA edit $3,912,500 $7,212,500
Additions:
See examples below

Legal, reorganization, audit and appraisal costs to prepare for the sale of the business

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$165,000 $105,000

Salaries of family members who are not expected to continue working for the buyer

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$125,000 $135,000

One-time bonuses paid for a nonrecurring and unusual transaction

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$75,000 $0

Officer life and disability insurance that will not continue after the sale

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$25,000 $30,000

Legal and other costs to buy out minority owners of the company

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$80,000 $70,000

Country club fees and season tickets to the Chicago Cubs

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$25,000 $30,000

Vehicles, education and other expenses for three family members

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$45,000 $55,000
Enter new addition here
Deductions:
See examples below
Increase in the cost of the person that will replace the owner/manager edit ($50,000) ($50,000)
Rent paid to the owner below market value for an equivalent building edit ($45,000) ($45,000)
Below-market salaries paid to key employees that are expected to continue with the buyer edit ($40,000) ($15,000)
Enter new deduction here
Adjusted EBITDA $4,317,500 $7,527,500
Multiplier X     X    
Estimated value
Difference

Additions and Deductions

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Below is a list of potential discretionary items in the Income Statement that may be adjustments to EBITDA.
These adjustments may be either increases or decreases to EBITDA and may have a material impact on the valuation of the business:


  • Excessive compensation to owners, management and employees
  • Personal legal costs for estate planning, divorce, personal litigation, etc.
  • No income or below-market income to owners and management
  • Tuition and educational expenses for children and family members
  • Cash donations to charitable organizations
  • Golf, country club or other such expenses not really necessary to the business
  • Nepotism expenses (salary, autos, computers, vacations, etc.)
  • Vacations or other related party travel expenses, including time-share expenses, etc.
  • Multiple vehicles or unusual vehicle expenses for the owner, family, etc.
  • Excessive insurance to owners and related parties (e.g., life, health, disability)
  • Building rent paid to an owner that is in excess of or under market value
  • Equipment leases paid to an owner that is in excess of or under market value
  • Professional sports tickets not necessary for the business
  • Rental expenses or repairs that would normally be paid by a landlord
  • Hobbies such as buying jewelry, antique cars, etc.
  • Below-market transfers of assets to related parties or family members
  • Discounted sales prices to related parties, friends, etc.
  • Costs paid in excess of market to vendors that are related parties or friends
  • Discounts or free delivery given to related parties or friends
  • Repairs, remodeling, maintenance, insurance or other expenses for a personal residence
  • Inventory or scrap sold in cash and not deposited into the company's bank account
  • Alimony or child-support payments made by the company
  • Bonuses or other perks that are above-market costs, etc.

Below are examples of one-time, nonrecurring or unusual expenses that might be included in adjusted EBITDA:


  • Maintenance capital expenditures
  • IT capital expenditures
  • Write-off of an unproductive or obsolete asset
  • Unusual, one-time or prior period adjustments proposed by independent CPAs
  • Legal expenses incurred for the exit strategy
  • Legal costs of restructuring or reorganization
  • Audit, appraisal or consulting fees for the exit strategy
  • Litigation expenses that have concluded and are nonrecurring
  • Costs of exits of minority owners prior to the sale of the company
  • Insurance claims
  • Opening a new facility
  • Writing off inventory that is unusual or nonrecurring
  • Unusual bad-debt expenses, such as a Chapter 11 bankruptcy filing by a customer
  • Employment costs, such as large severance or other nonrecurring expenses
  • Large and unusual bonuses or other compensation paid for nonrecurring transactions
  • Differences between book and tax depreciation
  • Professional fees, such as creating a Defined Contribution or Benefit Plan
  • Leases that were expensed instead of being capitalized
  • Equipment that was expensed instead of being capitalized
  • One-time marketing, branding, public relations or research costs

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