Thinking of selling your court reporting or litigation support firm? The first question most business owners ask is “what’s my business worth?”
Most businesses, including court reporting agencies and litigation support firms, are valued based on a multiple of the cash flow they generate. This cash flow is often referred to as earnings before interest, taxes, depreciation, and amortization or “EBITDA”.
The following multiples are used by business brokers, buyers and lenders to get a ballpark idea of the value of a business.
EBITDA SELLING PRICE MULTIPLE
$0 – $50,000 1.0-1.5 times EBITDA
$50,000 – $150,000 1.5-3.0 times EBITDA
$150,000 – $250,000 3.0 times EBITDA
$250,000 – $500,000 3.0-4.0 times EBITDA
$500,000 – $1,000,000 4.0-5.0 times EBITDA
Over $1,000,000 5.0-6.0 times EBITDA
The multiple can vary widely depending on a number of factors including size of the business, historic trends in revenues and profits, risks related to sales reps or reporters that have their own books of business, customer concentration, or other factors that might impact the future cash flow of the business.
How to Calculate the EBITDA of Your Court Reporting Firm
To calculate your court reporting company’s EBITDA, or earnings before interest, taxes, depreciation, and amortization, start with the profit shown on your P&L statement or tax return, then and add back interest, depreciation, and amortization. EBITDA is the starting point for any business valuation so it’s a good number to track on an annual basis.
In addition, it is important to calculate your EBITDA correctly. EBITDA should reflect a market-based salary for the firm’s owner. However, if you own your own firm you can pay yourself an above market salary and offer yourself perks that a buyer will not incur. These “excess” expenses can often be added back to your EBITDA resulting in a higher valuation. As a result, it is important to work with an objective third party to evaluate what adjustments can be made to your EBITDA to truly reflect the operating cash flow of your business.
Don’t Leave Money on the Table When Selling Your Court Reporting Firm
While rules of thumb and valuation multiples are easy to use, they are notoriously inaccurate because they don’t consider the unique value drivers or value detractors of your business. Using valuation rules of thumb will give you a rough idea of what your business is worth, but to get a more accurate idea, the valuation should account for things like your agency’s past trends in performance, type of clients, recurring revenue, use of technology, management depth, projected growth, and other things.
To get an accurate valuation talk with a business broker or M&A advisor who specializes in representing professional services companies, including court reporting and litigation support firms. They will work with you to make the appropriate adjustments to your EBITDA, evaluate your business and client base, and value your firm properly so you don’t leave any money on the table when you sell.
At Jackim Woods & Co. we use the discounted cash flow and comparable transactions valuation methods to provide clients with an accurate, market based, idea of what their court reporting and litigation support firms are worth.
Get a Free, No Obligation Market Assessment of your Court Reporting Firm
If you’d like to begin exploring your options, contact Rich Jackim, Managing Partner at Jackim Woods & Co. (224-513-5142 or firstname.lastname@example.org) to get a FREE Valuation and Market Assessment. There is no cost or obligation and all conversations are strictly confidential.Read More