Article: A Crash Course On Earnings Multiples
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A Crash Course On Earnings Multiples
As a trusted business advisor you?ve probably heard former business owners telling people that they sold their business for ?six times earnings.? As investment bankers, the first question we hear from prospective clients is ?Can I get the same multiple if I sell my business?? The answer is an unequivocal "it depends." It depends on a number of things, but first and foremost, it depends on how you define ?earnings?.
As all investment bankers and sellers know, ?Cash is King.? After all, cash removes the seller?s risk in the transaction. However, when a buyer pays cash for a business, that buyer wants to know exactly how much the business is earning.
Let?s start with what seems to be a pretty basic concept: earnings.
The Definitions of Earnings
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