Whether you are thinking of selling now or sometime in the future, it is important to understand how your business is valued and the key factors that contribute to your business value.
As a business owner, you may have at one time considered selling your company. Understanding the worth of your business is a critical first step in this process. Determining the value of your business is based on this formula:
Businesses are bought and sold based on multiples of EBITDA (Earnings Before Interest, Taxes, Depreciations & Amortization). This financial metric is key in measuring your company’s operating performance and used to determining profitability of different businesses in the same industry.
The Applicable Multiple reflects how much a buyer is willing to pay for each dollar of EBITDA generated by the business. This multiple varies depending on the industry, growth potential, profitability, number of locations, number of employees, operating market, fair market value of physical assets and more.
EBITDA x Applicable Multiple
= Your Business Value
Factors Considered When Determining Business Value
Profitability
Buyers are looking for a healthy profit margin. For a healthcare business they generally want to see 15-30% profit margin and 10-20% for other businesses.
Number of Employees
A business with a well-established workforce is a key metric when evaluating. Buyers typically prefer a business with 30 to 50 Employees or more but will consider less in some cases. In acquisitions, the bigger the company the better.
Number of Locations
Having multiple locations especially in healthcare services creates a more attractive buying opportunity because it offers a buyer diversified revenue streams, increased market presence and demonstrates that a business has the ability to grow and expand.
Market
Buyers are interested in businesses that operate in markets with a strong demand for their services. In the healthcare services industry, factors such as aging populations and increasing health awareness can contribute to a growing demand for services like physical therapy.
Client Base
A loyal and diverse client base is a valuable asset for any healthcare services business. Potential buyers will assess client demographics, the number of active clients, and client retention rates. Positive client reviews and testimonials can also contribute to the overall attractiveness of your business.
Services and Equipment
The range and quality of services offered by your healthcare services business, along with the condition of the equipment and facilities, play a significant role in its worth. Well-maintained, up-to-date equipment and a diverse range of high-quality services make your business more attractive to buyers.
When Should I Get an Evaluation?
Whether you're motivated to sell now or considering it within the next 5 years, it's time to act. A review of your business is a critical starting point. It will confirm the state of your business and reveal if any financial or operational issues exist that may negatively affect your business's valuation. For areas needing improvement, the MT team will advise you on how to address specific issues and support you throughout the process.
It’s always a good idea to get a current valuation as the market fluctuates, and favorable market trends could facilitate a decision to sell. It’s also helpful for tax purposes, estate planning or qualifying for a loan. A valuation is critical for key decisions related to growing and managing your business as well as a future sale.
How Do I Get an Evaluation?
The value of a business is best determined by conducting a free of charge, no commitment MT initial business valuation. We have done so many that we know all the right questions and necessary materials we need; we are very thorough and specific in collecting what we need for an initial valuation.
Let MT Business Brokers can help you navigate this complex journey.
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