What Multiple of SDE to Pay for the Risk? Quit your job, Self Employment, SMB Acquisition
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- เผยแพร่เมื่อ 26 ก.ย. 2023
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I got a question from an email subscriber asking what multiple of SDE he should pay for a business to justify the risk of leaving his job.
Good question. I think I give a pretty justified response.
Watch it here: • What Multiple of SDE t...
Cheers
See you over on TH-cam
David C Barnett
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Great video David, in the SMB space it always feels like, "Small business size!" (The Princess Bride) "that word you keep saying. I don't think it means what you think it means."
So true! Love that movie.
I appreciate this channel a lot. Very useful info and straight forward
Thanks Garrett
I have these brokers valuations of businesses way above their EV. They won’t even entertain on nationwide comparison previous sales. They keep doing way above SDE and won’t even look at EBITDA valuations … different brokers giving different valuations. Seller’s won’t even move because these brokers are setting prices and setting the EV so high sellers don’t even want to negotiate because we value professionally! It’s been a hard road so far. Not a fan of business brokers tbh .. and I’m a yacht broker. Thanks Alan
Eventually those sellers won’t end up selling due to the listing being overpriced and will become desperate to sell; at that point they end up selling at a very low valuation.
All you can do is express interest and stay in touch and let them know you're interested in making an offer that works for you. Eventually, as Romil says, they may come around... or find a chump who just sold his California house for $$$ and doesn't know any better. Don't laugh.. this is the plan for some.
@@DavidCBarnett we held our ground and I stood firm and coached my biz partner to hold on one and we got the offer accept with RE included. Quick question: I remember you had a video on biz partners advice and drawing up a mutual agreement? Could you send me that video link please ? As I’m bringing capital, he’s doing the SBA guarantor part. TIA 🙏
Are you more on the numbers/valuation side of acquisitions or are you also involved in the entrepreneurial side. ie: strategic buying to unlock value, increase product/service range....
You pay for a business based on what you receive. The reasons for wanting to do the deal are based on those things you point out about building value. Don't pay a seller for the work/changes you have to pull off.
Your videos are always on point. I have happily watched about 75% of your videos on YT. Keep up the great job David 😊 I’m interested in buying a business but I’m not sure of which industry to venture into. I currently work as a compliance officer/business analyst. Which industry will you recommend for a first time business buyer?
Something that takes advantage of your skills. So you can improve it.
Hello, how many businesses do YOU buy annually/monthly? Better yet, what's the highest amount of businesses a course member has bought?
I would like to conceptualize what has been possible within your M&A group. I have a distribution business and the idea of buying cash flowing businesses sounds exciting to me.
I don't buy businesses. I run a consulting company which helps people buy and sell businesses and sometimes work on as many as three new deals each week.
In my group coaching program there are people who have bought many businesses, but that's not very common. Most people buy one and then become its operator. If you're curious about it, there is a call booking link for questions about the program you can find at www.BusinessBuyerAdventure.com but please watch the two videos on that page before you book the call. They will answer most of your questions.
Great details, David. Why is capex included in sde? (Mentioned at 8.09) Did you mean amortization & depreciation?
Thanks!
Capex is NOT included in SDE. That's why you need to figure it into your own cash flow budget.
How would I find the correct SDE multiple of a manufacturing business?
2020-22 SDE was ~$200k and 2023 SDE was ~$400k. Is this SDE spike something to question?
Hi, If the sales are the same and the SDE increases like that, I'd want to know why.
The multipliers are different by industry and size of business, ultimately, it needs to cash flow. Manufacturing typically goes for higher SDE multipliers than service businesses especially if there is a lot of equipment.
If you're serious about this business, the best thing might be to hire us to do a Buyer Insight Analysis. This is where we take a look at the financials and do the research and formulate some offers on the business that make sense.
@@DavidCBarnett Thank you, I’ve been planning to hire a someone to do a business evaluation when I get closer to deciding on it. I assume this is done before an offer is made and DD begins?
@@DavidCBarnett Would a buyer insight analysis be equivalent to a business evaluation? I really appreciate your detailed explanations, definitely a great channel for someone who really wants to know how things work.
Anyone know how different the valuations are in the USA since we have more bank financing versus seller financing?
Yes, I've addressed this in other videos. The additional financing availability drives prices up 25 to 30% over what people pay in other places.