05 Sep Around the Web: A Week in Summary
A recent blog post from The Business Journals entitled “As a Business Owner, Can You Afford to Retire?” discusses how crucial it is for a business owner to begin planning their exit strategy as early on as possible.
When a business owner retires, there are many options for transferring the business. Many owners, however, can overestimate their net worth and/or underestimate how much of their net worth is wrapped up into their business. For this reason, the proceeds of the sale of their business are what many business owners will rely on for funding their retirement. Therefore, setting retirement goals early on and then running your business throughout the years so that it is aimed at meeting these goals when it’s listed for sale is the best way to make an already difficult transition that much smoother.
A recent blog post from Viking Mergers & Acquisitions entitled “Understanding EBIDTA; How to Calculate Earnings Before Interest, Taxes, Depreciation & Amortization” walks through the process of calculating EBIDTA for a business.
EBIDTA is used in valuation as a common measure of profitability and cash flow in a business as well as an indicator for its future financial performance and earning potential. The following factors are included when calculating EBIDTA:
There are two formulas that can be used to calculate EBIDTA. The first is EBITDA= Earnings + Interest + Taxes + Depreciation + Amortization, and the second is EBIDTA= Operating Profit + Depreciation + Amortization.
A recent article from Divestopedia entitled “Private Equity Firms: Are They a Good Fit for Your Business” discusses how private equity firms work with your business to generate a high valuation. Rather than selling outright to a strategic buyer, private equity firms allow an owner to make a gradual transition to exiting their business. By setting a plan in place and working alongside the owner for five to ten years, private equity firms focus on:
- Developing operational metrics to drive business efficiency, resulting in higher margins and EBITDA
- Hiring and/or developing the existing management team to transition from an owner managed culture to a professionally managed culture
- Focusing on balance sheet management so additional free cash flow can be generated
- Developing the processes and systems so the company becomes more predictable and scalable
- Investing in other companies that may be tucked in or merged together to create a larger industry player.