Small Company Valuation

Common Methods   Ultimately, the value of anything being sold is what someone is willing to pay for it. There are, however, many accepted methods for determining value when it comes to your business:
Book Value,
Discounted Cash Flow,
Multiple of Cash Flow
and Multiples of something else—for example, some industries are valued at a multiple of subscribers, a multiple of revenue, etc.
Hadley Capital’s Approach to Valuation   Hadley Capital values Companies based on their ability generate sustainable,
operating cash flows.
We typically apply a multiple to the annual, sustainable operating cash flow of a business to estimate its value. We use 
EBITDA
as a rough but good estimation of operating cash flow. To determine sustainable cash flow, we adjust EBITDA to include some positive and negative add backs.

Positive add backs that increase EBITDA may include:

  • Owners excess compensation
  • Rental expense above market rates
  • Owners benefits
    that are not required to run the business such as automobiles, vacations, etc.

Add backs that may decrease EBITDA include:

  • Rental expense below market value
  • Substantial annual capital expenditures
  • Additional salaries required when the owner departs
 
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