Earnings First, Sales Second
Two companies with $5 million in sales can be worth very different amounts. A buyer looks past sales to the profit left over, because that profit pays back the loan and the buyer's own investment.
A company with thin margins may sell for well under its yearly sales. A lean, profitable one can sell for more than owners expect.
Two Ways to Measure Profit
Seller's discretionary earnings
For companies worth up to about $2 million, buyers usually use seller's discretionary earnings, or SDE.
It is what one working owner could take home: net profit plus your salary, health insurance, personal perks run through the company and one time costs.
EBITDA
Once a company is big enough that a hired manager runs it, buyers switch to EBITDA. It counts a fair salary for every role, including the one you fill, so it shows what the company earns without you.
Recasting the Books
Your tax returns are built to lower your taxes, not to show a buyer what the company earns. Recasting adjusts them. A broker adds back legitimate owner costs and one time items, such as a lawsuit or a big repair that won't repeat.
Some things don't count. Money from selling an old truck or taking a loan is not earnings. Cash that never went into the books can't be proven, so it adds nothing to the price.
That last point surprises people. Skipping tax on a dollar of cash might save twenty cents, but at a multiple of two or three it can cost you two or three dollars at sale time.
Where the Multiple Comes From
The multiple is the number of years of earnings a buyer will pay for. Many established companies sell for about two to three times cash flow, and that range holds steady from year to year.
Inside the range, risk decides where you land. Buyers pay more when they see:
- A team that handles customers and jobs without you
- Repeat customers, with none above about 15 to 20 percent of sales
- Records that match from the books to the tax returns
- Equipment that is in good shape and paid for
- Steady or rising profit over the last three years
Risks Specific to the Border
Many El Paso companies sell to a few large plants in Juárez or to one freight account. That can be a fine business and still worry a buyer, because losing one account changes everything.
Brokers handle this with structure: part of the price paid later if the account stays, or the seller staying on for a transition. See the kinds of business pages for how this plays out by industry.
Real Estate Is Priced Separately
If you own your building, it gets its own value based on rent and local property prices. Many buyers would rather lease it from you than buy it, which can give you rent income after the sale.
If your company pays you less than market rent today, expect buyers to price it at full market rent.
What to Do With This
You don't need a perfect set of books to ask. Send the basics through the valuation form or call (915) 555-0193, and a broker will walk through your numbers. The timeline shows what comes after.