sageadvisorygroup

EBITDA vs. SDE: Which Financial Metric Should You Use to Value Your Business

margot@sageadvisors.biz (MARGOT MURPHY) — Sun, 06 Oct 2024 20:31:58 GMT

What’s the Difference Between EBITDA and SDE?

When selling a business, understanding the financial metrics that determine its value is crucial. Two key metrics that frequently come up in this process are EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and SDE (Seller’s Discretionary Earnings). While both are important in valuing a business, they serve different purposes and are used by different types of buyers. Let's explore the differences between EBITDA and SDE and how they relate to selling your business.

What Is EBITDA?

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric is often used by larger, more sophisticated buyers like private equity firms, venture capitalists, or strategic buyers. It provides a clear view of the operating profitability of a business by stripping out expenses that can vary based on accounting choices, financing structure, and tax planning. In simple terms, EBITDA focuses on the earnings a company generates purely from its core operations. It excludes any non-operational factors like debt (interest), taxes, and depreciation/amortization of assets. This makes EBITDA particularly useful when comparing companies in different industries or companies with varying capital structures.

What Is SDE?

SDE , or Seller’s Discretionary Earnings, is more commonly used when selling small businesses. It starts with net profit but also adds back the owner’s salary and any discretionary expenses or personal benefits the owner may be running through the business, such as health insurance, travel, or vehicle costs. The idea behind SDE is to show the full earning potential a new owner could achieve. Unlike EBITDA , which focuses on the company's operating performance, SDE highlights the business’s cash flow that would be available to a single, hands-on owner/operator. It paints a more accurate picture of the income available to someone who intends to run the business themselves.

How EBITDA and SDE Impact Business Valuation

Both EBITDA and SDE are used as a basis for calculating the value of a business, but they target different buyer types:

EBITDA : Larger, financially-savvy buyers who may not run the business day-to-day but instead see it as an investment, often rely on EBITDA to assess the operational profitability of the business. These buyers tend to apply EBITDA multiples to determine the business value. Businesses valued using EBITDA typically fall in the middle-market range ($2 million+ in revenue) and above.
SDE : SDE is most relevant for small businesses, often those generating less than $2 million in revenue. Potential buyers in this segment are often owner-operators who want to step in and run the business themselves. Therefore, they care more about the cash flow that will be available to them, which is what SDE reflects. In this case, valuation is often based on an SDE multiple.

Which Metric Should You Use When Selling Your Business?

The decision to focus on EBITDA or SDE depends largely on the size and structure of your business and the type of buyer you're targeting.

If your business is larger , with established management, multiple revenue streams, or complex financial structures, focusing on EBITDA is likely the best route. Buyers in this space are typically interested in how profitable the business is without the influence of its current ownership structure.
If you’re selling a smaller business where you are the primary operator, SDE provides a more accurate reflection of the financial benefit a buyer could expect. This approach helps attract individual buyers or small investors who are looking to step into your shoes and operate the business directly.

Conclusion

Understanding the difference between EBITDA and SDE is essential when preparing to sell your business. Each metric tells a different story about your company’s financial health, and choosing the right one can make a significant difference in attracting the right buyers and getting the best value for your business. At Sage Advisory Group, we specialize in guiding business owners through the valuation and sale process, ensuring that you maximize your business's potential and appeal to the right type of buyer.

If you're ready to explore selling your business or want to learn more about the best valuation method for your company, contact us today at

Sage Advisory Group . We're here to help you through every step of the journey.

Task and Milestone Program for Small Business Sales Your Path to Success

margot@sageadvisors.biz (MARGOT MURPHY) — Thu, 11 Jul 2024 17:01:33 GMT

The Challenges of Selling a Small Business

Selling a small business can be overwhelming, especially for owners who are already stretched thin with daily operations. At Sage Advisory Group, we handle every aspect of the sale process , from marketing to prospect sourcing and pre-vetting interests, ensuring a seamless experience for you.

To Whom Is This Program Best Suited?

Designed Exclusively for Small Business Owners

Sage Advisory Group's Task and Milestone Program is tailored specifically for small business owners who are looking to sell their businesses. While our primary focus is on representing companies generating between $2 million and $15 million in annual revenues, we recognize the unique needs of “main street” business owners and offer specialized services to support them.

Ideal Candidates for the Task and Milestone Program

Small Business Owners with Limited Revenue

If your business generates less than $1 million in annual revenue, our program provides the resources and guidance needed to attract the right buyer and ensure a successful sale. Our team will manage the entire process, from financial organization to marketing and negotiations, so you can focus on your daily operations.

Businesses with Little to No Net Income

For businesses that struggle with profitability, our program helps highlight the value and potential of your business to prospective buyers.

Owners Needing to Organize Their Finances

If your financial records are not in order, our advisors will assist you in preparing your business for sale, ensuring it is presented in the best possible light.

Sellers Facing Extenuating Circumstances

Whether due to personal or market conditions, if you need to sell your business urgently and on your own, our free cheat sheet resource is designed to guide you through the process.

What We Offer

Sage Advisory Group helps you navigate selling your business by providing effective marketing to attract qualified buyers, offering micro-valuations to accurately assess market value, and supplying resources like our Business for Sale by Owner Cheat Sheet to guide you through the process. We take care of all the heavy lifting , ensuring your business is presented in the best possible light to maximize its value.

Crafting Irresistible Marketing Messaging

Establishing the Basics

Create A One Sheet Marketing Tool

What is a One Sheet?

A one-sheet is a concise, single-page document that provides key information about a business opportunity. It is designed to capture the interest of potential buyers by presenting essential details in a clear and compelling manner. Here are the key components and tips for creating an effective one-sheet based on the provided strategies

Key Components of a One-Sheet

Business Overview
Sales/total revenue includes figures for the current year and the previous three years to show financial performance trends.
Cash flow/net profit provides supportable numbers, ideally verified through filed tax returns.
Years in operation include how long the business has been running and its ownership structure.
Operational Details
The licenses and barriers to entry list includes any required licenses and potential barriers to entry for new owners.
Employee information details the number of employees, their positions, rates of pay, and employment tenure.
Payroll includes the total monthly payroll amount.
Lease and Assets
Space lease details provide information on the size of the space, lease term, and monthly rate. Confirm with the landlord that the lease is assignable.
Assets include describing the equipment, fixtures, and inventory included in the sale, along with photos if possible.
Growth Opportunities
Expansion potential highlight specific ways a buyer can grow and scale the current operation.

Tips for Creating a One-Sheet (Handled for you by Sage Advisory Group)

Our experts will create professional one-sheets, ensuring clarity, visual appeal, and compelling content that highlights your business's unique selling points.

Clarity and brevity ensure the information is clear and concise. Avoid overwhelming potential buyers with too much detail.
Visual appeal uses a clean and professional layout. Incorporate branding elements like logos and color schemes to make the document visually appealing.
Compelling content focuses on the unique selling points of your business. What makes it an attractive investment?
Contact information includes your contact details, to ensure that interested parties can easily reach out for more information.

Flyers and Postcards

Create professional flyers or postcards highlighting key aspects of your business.

Display these in prominent locations where your customers frequent.

These traditional materials serve as a tangible touchpoint, reaching local customers and making a personal connection.

Contemporary Focus Enhancing Reach and Engagement

Digital Flyers and Email Campaigns

Convert your physical flyers into digital formats to be sent via email to your customer list.

Utilize email campaigns to reach a wider audience, ensuring your business information is easily accessible and shareable.

Leverage social media platforms to share digital flyers and engage with potential buyers online.

Enhance the digital flyers with interactive elements, such as clickable links to contact information or virtual tours of your business.

By combining traditional and contemporary methods, you maximize the reach and impact of your marketing efforts, ensuring your business attracts a diverse range of potential buyers.

Reaching the Right Buyers

When selling a small business, procuring a high-quality mailing list is crucial for reaching potential buyers effectively. Here are some of the most relevant sources and considerations for obtaining mailing lists tailored to your needs

Top Mailing List Providers

Local Title Companies

Connect with a local title company to obtain a list of names and addresses in a geographic area you choose. This approach allows you to do a mailer about the opportunity, effectively reaching potential buyers in your desired location.

DirectMail.com

DirectMail.com offers targeted business mailing lists, combining marketing techniques with advanced tools to enhance direct marketing efforts. They provide high-quality, curated lists for specific industries, ensuring relevance and accuracy.

LeadsPlease

LeadsPlease https//www.leadsplease.com/ provides both consumer and business mailing lists, with options for postal and email addresses. They are known for high accuracy and competitive pricing, making them a top choice for targeted marketing campaigns.

PostGrid

PostGrid https//www.postgrid.com/ offers customizable mailing lists based on specific marketing requirements, ensuring accurate and verified contact information with a focus on constantly updating its database to maintain data quality.

Key Considerations for Buying Mailing Lists

Target Audience

Ensure the mailing list targets the right audience based on demographics, firmographics, and geographic location. This increases the likelihood of reaching potential buyers who are genuinely interested in your business.

Data Accuracy and Validation

Choose providers that offer validated and frequently updated lists to avoid high bounce rates and undeliverable mail. Accurate data is essential for the success of your marketing campaign.

Contact Sage Advisory Group today and let us handle every step of the sale process for you, ensuring the best possible outcome.

Get in touch now for help preparing your business for the most successful sale possible.

Business Owners: Sell Your Business with Our Cheat Sheet | SageAdvisors.biz

sageadvisorygroup@gmail.com (Margot Murphy) — Tue, 15 Nov 2022 00:18:15 GMT

Are you planning to sell your business on your own? Get access to tips and strategies from Business Advisor, Margot Murphy, on the essential steps you need to take if you are selling a business on your own. Click the image below to download.

If you need help selling your business, contact us today by clicking here , or calling 949-630-5577.

Margot Murphy is a Principal Broker of Sage Advisory Group, a California Business Brokerage firm which acts as a marketing engine, sale facilitator and sell-side representative for business owners and corporations seeking to transfer sale of companies generating $2mm - $15mm annual revenue. We also have services available for business owners that generate less than $1MM. Ask about our Task & Milestone service.

New Resource: Structuring the Sale of Your Business - Asset vs. Stock

sageadvisorygroup@gmail.com (Margot Murphy) — Tue, 08 Nov 2022 00:19:29 GMT

1 min read

One of the first things you and your buyer will need to agree on is a way to structure the sale. This will be done either as an asset sale or a stock sale. But because you each have different interests, what’s best for your buyer may not necessarily be what's best for you as the seller. Understanding the differences in how asset and stock sales are structured is essential for ensuring you attain the results you desire from the sale.

Tax implications and potential liabilities are among the many considerations when negotiating the structure of the sale. Since stock and asset sales affect these issues in different ways, we have found that buyers typically prefer asset sales, while sellers generally opt for stock sales.

An asset sale involves the purchase of individual assets. These are generally cash-free, debt-free transactions. The seller retains its cash and long-term debt obligations and stays in control of the legal entity.

The buyer purchases the company’s individual assets — such as equipment, fixtures, leasehold improvements, licenses, goodwill, intellectual property, trade secrets, trade names, website URLs, phone numbers, software and software licenses, customers lists, and covenants not to compete. Under an asset sale, typically the seller will abandon the DBA and the buyer will adopt the DBA through the California Secretary of State. The buyer will generally also formulate a new, or utilize an existing corporate entity or partnership, through which the DBA will operate within for tax filing purposes.

Whereas in a stock sale, which in some ways may seem less complex than an asset sale, the buyer purchases the seller’s share in a corporation or the seller’s interest in an LLC or membership in a partnership -- securing ownership of the seller’s legal entity through a purchase of the shares.

Liabilities IE A/P and Assets, IE A/R, can be individually negotiated and agreed to by the parties within the stock transfer agreement. Reasons beneficial for a stock purchase are if, for example, there are revenue generating contractual relationships held specifically under the entity's name. In this case, if a buyer were to buy assets only, they could risk losing those contractual relationships since the entity holding the contract would cease to exist. In addition, oftentimes necessary insurance policies and licensing required for operations could be lost if assets-only are transferred through sale.

Deciding how to structure the sale of your business, can present some challenges. Be sure to take time to carefully weigh your options before deciding how to structure your transaction. Talk with a trusted Business Broker, Attorney, and CPA early in the process to fully understand which option will provide the longest-term benefit of a sale so a buyer doesn't overly risk losing revenue-generating contracts or licensing needed to transition the going concern under new ownership.

To help give you an overview of the advantages and disadvantages of Asset Sale and Stock Sale, we've created these free resources for you. Click on an image below to download.

For more information or to discuss which is right for you, click here to schedule a consultation or contact us at 949-630-5577.

Margot Murphy is the Principal Broker of Sage Advisory Group, a California Business Brokerage firm which acts as a marketing engine, sale facilitator and sell-side representative for business owners and corporations seeking to transfer sale of companies generating $2mm - $15mm annual revenue.

Most Popular Expansion Methods for Privately-Held Companies

sageadvisorygroup@gmail.com (Margot Murphy) — Mon, 31 Oct 2022 23:21:05 GMT

1 min read

Many successful small to medium-sized businesses in today’s US economy discover growth opportunities through horizontal and vertical expansion.

HORIZONTAL GROWTH

When a company chooses Horizontal Integration, it acquires infrastructures, assets and companies within the same industry. This results in an expansion of existing operations, rather than the establishment of new operations. An example of horizontal integration would be an overseas commercial upholstery manufacturer buying a similar US-based company in order to procure new distribution channels. Or a fitness gym with multiple locations buying smaller gyms in strategic geographic markets in order to grow their brand and membership numbers.

VERTICAL GROWTH

Vertical growth of a company is the act of expanding into new operations for the purpose of decreasing the company’s dependence on other firms that provides services to the company’s operations. For example, a transportation company specializing in relocation and moving services that typically pays another firm to store and warehouse their customer’s goods, may choose to vertically expand through acquisition of a warehouse facility.

Vertical integration allows a company to internally realize value that would otherwise be an expense paid to another firm. By learning distinct differences, and the opportunities provided within these two business growth strategies, a forward-thinking, aggressively-positioned, privately-held company can capitalize on new and heightened successes.

If you're thinking about expanding your business operations, contact us to discuss strategy and available opportunities.

To schedule a consultation, click here or call 949-630-5577

Should I Sell My Business Now: Things to Consider

sageadvisorygroup@gmail.com (Margot Murphy) — Mon, 24 Oct 2022 23:22:59 GMT

2 min, 30 second read

It’s no secret that the business world is changing at an unprecedented pace. From new technologies and shifting customer demands, to more recent challenges with labor reliability, the landscape of business is always evolving.

This means it’s increasingly imperative for every owner of any type of company to keep their business as innovative and forward-thinking as possible. Afterall if your company isn’t able to stay ahead of the curve, it’s going to become outdated sooner rather than later, and lose desirability, aka value. Therefore, if you own a business right now and feel uncertain about whether or not it’s time to sell, read on for a few things to keep in mind before making a decision.

1. Know Why It’s Time to Sell

First, the economy. While the economy has improved since the onset of the pandemic, talks of recession are now everywhere, leaving the majority of the country pondering next steps and experiencing multiple levels of economic uncertainty. For many, this can mean that the hard work of business ownership is starting to feel especially challenging. If you own a company that has experienced a historically successful multi-year run, yet are feeling drained, burned out or your personal trajectory toward what you poured your heart and soul into has shifted, it could be time to effectuate a sale and go out on top.

2. What Goals Will You Set for Selling Your Business

The market itself is always the FINAL and most definitive gauge of sale value. A formal business valuation is an indicator…An opinion. It’s helpful for a seller to retain realistic expectations and remain engaged. A good broker rep offers under-rated support; keeping lines of communication open, feathers unruffled and confidence levels between parties high. Certain times there are deals in play when a good broker working for you determines it’s not the right deal and it could be best to cut bait and start again. A good broker won’t drag you through the wrong deal for their individual interest.

3. Realize That Selling a Business Isn’t Easy

Selling your company is not as simple as posting advertisements, handing over ownership and walking away with a payout. Selling a business takes strong seller commitment and engagement. But the process must be balanced so you can continue to operate your business to ensure it remains profitable during sale. A good sell-side broker juggles myriad tasks and attention needed.

These are milestone phases of selling a business:

Packaging the Opportunity: During this phase your broker will package your business to present to the market, advertise, source leads, cold-call, network, talk with and coordinate meetings with worthy interested parties. This is the most time-consuming part of selling a business. And a crucial part. If mishandled, you will miss attracting the right buyer.

Due Diligence / The Vetting Process. You will interview buyers, just as they interview you. Your broker will head up necessary due diligence recommended for you, as well as coordinate what information a buyer under contract will need to move through to a final purchase commitment.

Closing: Almost every single deal will be additionally legitimized through a formal, specialized escrow process. Whether an asset sale or a stock sale transfer, a good broker, along with your CPA, will guide you on which sale outcome is best suited for you from a tax perspective.

4. Consider who you Hire to Represent your Sale

Know you will be engaged with your broker for several, if not many months. Do you feel a sense of trust with them? Do you align with their energy? Do you feel assured they will unconditionally represent your best and final interest…At all times? There are many qualified, experienced business intermediaries serving business sellers and buyers. Interview several.

To schedule a confidential, no-obligation consultation, contact Margot today at https://www.sageadvisors.biz/schedule-a-consultation or call her direct at 949-630-5577.

sageadvisorygroup

EBITDA vs. SDE: Which Financial Metric Should You Use to Value Your Business

What’s the Difference Between EBITDA and SDE?

What Is EBITDA?

What Is SDE?

How EBITDA and SDE Impact Business Valuation

Which Metric Should You Use When Selling Your Business?

Conclusion

Task and Milestone Program for Small Business Sales Your Path to Success

The Challenges of Selling a Small Business ﻿

To Whom Is This Program Best Suited?

Designed Exclusively for Small Business Owners

Ideal Candidates for the Task and Milestone Program

What We Offer

Crafting Irresistible Marketing Messaging

Establishing the Basics

Create A One Sheet Marketing Tool

Flyers and Postcards

Reaching the Right Buyers

Top Mailing List Providers

Business Owners: Sell Your Business with Our Cheat Sheet | SageAdvisors.biz

Are you planning to sell your business on your own? Get access to tips and strategies from Business Advisor, Margot Murphy, on the essential steps you need to take if you are selling a business on your own. Click the image below to download.

New Resource: Structuring the Sale of Your Business - Asset vs. Stock

1 min read

Most Popular Expansion Methods for Privately-Held Companies

Should I Sell My Business Now: Things to Consider

It’s no secret that the business world is changing at an unprecedented pace. From new technologies and shifting customer demands, to more recent challenges with labor reliability, the landscape of business is always evolving.

The Challenges of Selling a Small Business