Scaling Your Business - Part 2

Here’s how scaling could impact your business valuation and your exit strategy. This concept of multiplying your business valuation is normally a lengthy process and depends on what your exit goals are. Keep in mind that this article offers a quick overview of how scaling could work for you, done the right way.

It’s all about what multiple of your earnings would a buyer be willing to pay to acquire your business.

The multiple can vary by several factors. The most obvious ones are annual revenue and type of business.

Published data for sales of Small Businesses (annual revenues below $10MM) shows the AVERAGE Small Business sold for 2.3 - 3.5 times earnings.

Let’s look at a business at the low end of that annual revenue range - revenues up to 1 to 2 million. So if earnings are, let’s say $200,000, you might expect offers of around $500,000 or so.

Again, your type of business and other factors will influence the valuation.

Now let’s say annual revenues are up around 3 to 6 million and earnings are $500,000. Using the multiple in the previous example, you might see offers around $1.3 million. But because this business is much larger and profitable, you would command a multiple of 4 or more. So instead of $1.3 million, your offers would come in at around $2 million.

But, you say, I know someone with a business that size who sold for 6x or 8x earnings. We both know that there are exceptions to everything. However, the owners of those exceptional businesses developed an exit strategy. Then they took the time to make the business more attractive to premium buyers.

If you prepare for your exit by implementing the key drivers of value, you will see comparable results. The fact is, most small business owners are too busy working IN their business. The ones getting higher multiples when they exit had been working ON their business.

There is also a Fast Track path to 6x, 8x, 10x or even higher multiples. It’s called Growth by Acquisitions. We’ll discuss that in a future article.

If you’re at the lower end of multiples and want to get 3x to 6x earnings, you need time to plan and grow the business. You also need an outside expert to guide you.

By working with the Exit Authority team, you’ll be able to make your business highly attractive to potential buyers or investors.

Whether you want to exit this year or take more time to prepare, scale, and grow,  feel free to explore ExitAuthority.com to learn more about how we could help you.