How To Unlock True Value
In order to help you discover the untapped potential within your business, we at Jesus M&A specialize in educating you so you can understand how to unlock and multiply your company’s true worth. It starts with understanding business valuations. Lets take a look at business valuation basics.
Common Valuation Methodologies
These are the three main approaches used for business appraisal and valuations across industries and revenue tiers.
A. Asset-Based Approach (Cost to Create)
Used primarily for asset-heavy businesses (like transport or manufacturing) or struggling businesses where the equipment is worth more than the profit.
Formula: Total Fair Market Value of Assets - Total Liabilities = Business Value.
B. Market Benchmarking
This involves looking at "comparable sales" within the same industry and region—much like a real estate appraisal.
Example: If three mechanical workshops in Western Sydney recently sold for 2.2x their annual profit, a similar workshop will likely be valued in that range.
C. Discounted Cash Flow (DCF)
Unveiling the True Profitability Through Add-Backs in M&A
In M&A, ‘normalizing’ the P&L is vital. Business owners often run personal expenses through the company to cut tax. Tax accountants shield business owners by hiding a companies profitability. We unlock the true profit buried in the figures, and ‘add back’ these items to ensure a fair valuation. This is calculated using EBITDA with add-backs.
EBITDA means Earnings Before Interest Tax Depreciation and Amortisation. Some of the addbacks that are usually adjusted are:
- One-off repairs or equipment purchases
- Personal vehicle expenses or travel
- Excessive/Under-market rent paid to a related entity
- Owner’s salary (if it's above or below market rates)
Key Value Drivers: Boosting Your Business Valuation Before Exit
Understanding the key value drivers, earnings multiples, and how to get your baseline EBITDA (with addbacks) is crucial for maximizing your company’s valuation before an exit.
At Jesus M&A, we focus on these drivers to help you increase your company’s worth and attract the right buyers.
- Financial Performance: Clean books and consistent year-on-year growth.
- Scalability: Can the business grow without a massive increase in overheads?
- Customer Concentration: Diversify your customer base to reduce risk.
- Owner Dependency: Ensure the business can operate smoothly without the owner's constant presence.
