Valuing a business can be a complex process, as it’s influenced by numerous factors such as revenue, business category, location, cash flow multiples and more.  At Bravo Kilo Advisors, we believe that business valuation is both an art and a science and we consider many additional factors that contribute to a business’s value.

To determine the value of a business, we typically begin by asking for the company’s Profit and Loss (P&L) statements for the last three years and the current year, along with corresponding Balance Sheets and tax records.  From there, we derive the Earnings before Interest, Depreciation, Taxes and Amortization (EBITDA), which allows us to compare the business to others in a similar industry and scale. EBITDA also provides us with an indicator of the business’s financial performance.

Owner add-backs refer to expenses that are part of the P&L statement that we add to the owner’s cash flow, such as the owner’s car or family trips. However, lenders may reject these add-backs when assessing the business’s value. Therefore, it’s important to prepare your P&L statement and clean up any expenses that might be rejected.

Professional valuation experts use various methods to determine a business’s value, such as Multiples of EBITDA, Discretionary Earnings, Discounted Cash Flow, Comparative Transaction and Capitalized Excess Earnings.  However, the most crucial aspect is to gain a deep understanding of the business and the primary stakeholders’ requirements and expectations. Our goal at Bravo Kilo Advisors is to find the sweet spot where we can generate the most buyer interest while meeting all financing requirements.