Perhaps the Most Important Piece of Data in Selling Your Company

The overwhelming valuation standard for private companies is a multiple of annual cash flow. The most common definition of cash flow in M&A transactions is EBITDA, which is Earnings Before Interest, Taxes, Depreciation, and Amortization.

The calculation of EBITDA is produced through a standard accounting exercise familiar to all accountants, and most controllers and bookkeepers. The EBITDA that is used in valuations is generally what was produced in the prior fiscal year, but variations include trailing 12 months (which produces a higher EBITDA for companies growing in profitability) and current year (which therefore includes projections for the remainder of the current year and produces, for companies growing in profitability, a higher EBITDA).

In our upcoming post, we’ll talk about the complications that arise in calculating the appropriate EBITDA for your business. 

GROW and SELL Advisors, wholly-owned by Traversi & Co., LLC, is a premier sell-side M&A advisory firm – a boutique investment bank – serving the lower middle market.  Visit us here.

For a short video clip on this topic, click here.