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Resources
Reference material for owners and their advisors preparing for a sale or succession.
Understanding normalised EBITDA
Buyers of established businesses usually price on a multiple of earnings. The standard measure is EBITDA: earnings before interest, tax, depreciation and amortisation. It is normalised by adjusting for owner remuneration, related-party arrangements and one-off items, to show what the business will earn for a new owner.
Because the price is a multiple of this figure, every dollar of verifiable, sustainable earnings is worth several dollars at sale. Every dollar a buyer cannot verify is worth nothing.
EBITDA calculator · Further EBITDA tools
Three ways a business is valued
No single method gives the value of a business. Professional valuers and serious buyers look at it three ways, and the answer sits where those views can be reconciled.
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Market approach: what comparable businesses sell for
Applies an earnings multiple drawn from comparable transactions in your sector and size band, then adjusts it for growth, risk and owner dependency. It is where most buyers start, and it is only as reliable as the normalised EBITDA it is applied to. -
Income approach: what the business will earn for its next owner
A discounted cash flow model projects future free cash flow and discounts it at a rate that reflects risk. It rewards documented forecasts, contracted revenue and a credible growth plan, and it penalises uncertainty. -
Asset approach: what the business owns, less what it owes
Net asset value sets a floor under the price. It carries most weight in asset-heavy businesses, where earnings are volatile, or where a business is underperforming.
We prepare all three and reconcile them. Where they diverge, the gap usually points to a specific risk a buyer will price in, and that is where preparation pays for itself.
Analysis frameworks
These frameworks do not produce a number. They test the story behind the number: whether the earnings are defensible, and whether they can grow. They are broader, more holistic tools than a valuation model, but buyers use them, formally or not, to decide which multiple a business deserves.
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PESTLE
The political, economic, social, technological, legal and environmental factors that shape risk and opportunity. -
Ansoff Matrix
Maps growth across four routes: selling more to existing customers, taking existing products into new markets, developing new products for existing customers, and diversifying into both. Each route carries more risk than the one before. An evidenced growth plan built on the lower-risk routes supports a stronger multiple, because the buyer can see where the next earnings will come from. -
Porter's Five Forces
Examines the five pressures on profitability: rivalry among existing competitors, the threat of new entrants, the bargaining power of suppliers, the bargaining power of customers, and the threat of substitutes. Where a business is exposed on these forces, a buyer will treat its margins as fragile. We use the framework to show where margin is at risk and what would protect it, such as longer contracts, higher switching costs or a broader supplier base.
