So one of the ways I was told for determining the price of a business was (EBITDA x multiple) + Surplus cash + Real estate value (if any) - Inherited debt. There's two things I haven't been able to get an answer on with this. One being, how do you account for the FF&E/all the assets in the business in the price if this formula does not include them, or do you just accept it as is. The other question being in LBO's utilizing this same formula, I've seen people not include accounts payable as part of the inherited debt which has also thrown me off, since it is money the business owes. Thank you in advance, and I appreciate the content, I will be looking through it thoroughly going forward.
EBITDA multiples are for bigger companies, typically in the 'middle market' and higher. Also, you need to normalize it it often can't be used as presented in financials. You're being confused by some people discussing asset purchases while others are discussing share deals. The typical treatments of working capital are different in each scenario. Also, if you're watching videos about different sizes of businesses, this will add to your confusion. If you think you are going to buy a business, I'd recommend you sign up for Business Buyer Advantage Online Training and get a real foundation in this. All these questions will be sorted out for you. www.BusinessBuyerAdvantage.com cheers
3:58 dividing the free cash flow of the company buy the risk adjusted growth adjusted capitalization rate does indeed include goodwill. I'm sure you're aware of this just the way it was said might invite people to add the asset values to that value and overvalue the company.
Yes. Getting into the nitty gritty of Enterprise Value and what it entails is something that I go into more deeply in my courses. www.BusinessBuyerAdvantage.com
Where do people evaluating businesses find comparable sales? In real estate one would look at the local MLS system(s), but where would one look for sold businesses?
There are several private databases that you need to subscribe to. As someone who works in the field, I pay a few thousand $$ each year for access. Brokers who submit info earn free months of access.
Warren says to subtract depreciation from EBITDA to get to SDE in addition to adding back in the other owner's value from SGA... ? Your thoughts? Why should a seller get paid a multiple on an expense? Thanks and loved the video...
@@DavidCBarnett Thanks... I get the no-Depreciation in most of my conversations these days... And then you hear Warren and Charlie say it is complete foolishness to include it when buying a business... Looking forward to your video.
Hi Kim, sorry to hear about your divorce issues. In some businesses, like insurance sales, a list of clients or 'book' has a cash flow associated with it. Theses are sold all the time. If you're a widget maker and you buy a list of people who bought widgets last year, you may be able to make money with it but there are no guarantees. This is why a lot of widgeteers would rather joint venture with the list owner and give them a cut of any profits made from the list rather than gamble with a lump sum payment.
So one of the ways I was told for determining the price of a business was (EBITDA x multiple) + Surplus cash + Real estate value (if any) - Inherited debt. There's two things I haven't been able to get an answer on with this. One being, how do you account for the FF&E/all the assets in the business in the price if this formula does not include them, or do you just accept it as is. The other question being in LBO's utilizing this same formula, I've seen people not include accounts payable as part of the inherited debt which has also thrown me off, since it is money the business owes. Thank you in advance, and I appreciate the content, I will be looking through it thoroughly going forward.
EBITDA multiples are for bigger companies, typically in the 'middle market' and higher. Also, you need to normalize it it often can't be used as presented in financials.
You're being confused by some people discussing asset purchases while others are discussing share deals. The typical treatments of working capital are different in each scenario.
Also, if you're watching videos about different sizes of businesses, this will add to your confusion.
If you think you are going to buy a business, I'd recommend you sign up for Business Buyer Advantage Online Training and get a real foundation in this. All these questions will be sorted out for you.
www.BusinessBuyerAdvantage.com
cheers
Great information David. Thank you.
Glad it was helpful!
3:58 dividing the free cash flow of the company buy the risk adjusted growth adjusted capitalization rate does indeed include goodwill. I'm sure you're aware of this just the way it was said might invite people to add the asset values to that value and overvalue the company.
Yes. Getting into the nitty gritty of Enterprise Value and what it entails is something that I go into more deeply in my courses. www.BusinessBuyerAdvantage.com
Where do people evaluating businesses find comparable sales? In real estate one would look at the local MLS system(s), but where would one look for sold businesses?
There are several private databases that you need to subscribe to. As someone who works in the field, I pay a few thousand $$ each year for access. Brokers who submit info earn free months of access.
Warren says to subtract depreciation from EBITDA to get to SDE in addition to adding back in the other owner's value from SGA... ? Your thoughts? Why should a seller get paid a multiple on an expense? Thanks and loved the video...
You mean Warren Buffet? Ok, I'll explain why in a video. This will be a good one!
@@DavidCBarnett Thanks... I get the no-Depreciation in most of my conversations these days... And then you hear Warren and Charlie say it is complete foolishness to include it when buying a business... Looking forward to your video.
What’s your take on buying a client list not the business itself?
Hi Kim, sorry to hear about your divorce issues.
In some businesses, like insurance sales, a list of clients or 'book' has a cash flow associated with it. Theses are sold all the time.
If you're a widget maker and you buy a list of people who bought widgets last year, you may be able to make money with it but there are no guarantees.
This is why a lot of widgeteers would rather joint venture with the list owner and give them a cut of any profits made from the list rather than gamble with a lump sum payment.