Question 1

What is the best method to value a business?

Accepted Answer

No single method is best for all businesses. Revenue multiples work well for high-growth companies, EBITDA multiples for profitable businesses, asset-based for asset-heavy industries, and DCF for businesses with predictable cash flows. Using multiple methods provides a realistic range.

Question 2

What is EBITDA and why does it matter?

Accepted Answer

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures operational profitability without the effects of financing and accounting decisions. Buyers often use EBITDA multiples because it normalizes earnings across different capital structures.

Question 3

What industry multiple should I use?

Accepted Answer

Industry multiples vary widely: SaaS companies often trade at 3-10x revenue, professional services at 0.5-1.5x, retail at 0.3-0.75x, and manufacturing at 0.5-1x. Research recent transactions in your specific industry for the most accurate multiple.

Question 4

What discount rate should I use for DCF?

Accepted Answer

Discount rates typically range from 15-25% for small businesses, reflecting the risk of investment. Higher risk businesses (startups, volatile industries) warrant higher rates. Lower risk, established businesses with stable cash flows may use 12-15%.

Question 5

Why do different methods give different values?

Accepted Answer

Each method emphasizes different aspects of value: revenue methods value growth potential, profit methods value current earnings, asset methods value tangible resources, and DCF values future cash generation. The differences reveal what drives value in your business.