Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

January 6, 2019

What Multiple To Use In Valuing A Private Business

By Jeremy Albelda


“What is the value of my business?” “What is the right multiplier to use?” – these are questions we hear time and time again from anxious business owners trying to determine what to expect when selling their business in New York or any city,” says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based Mergers & Acquisitions advisory firm  “however, short of putting the business up for sale, there are various alternate means to establish a value for a business.”

The total Fair Market Value (FMV) of a business is sum of a company’s market value inclusive of its debts, minus any cash and cash equivalents. There are multiple methods of calculating the FMV, however, never relying on just one single ‘multiplier’. Rather, most professionals use a weighted approach to valuing a company, by applying methods of asset valuation, income-based approaches, and market comparisons. By applying 5 to 7 different valuation methods, weighting them properly with a cross check against expected returns for an investor, a qualified business valuation in New Jersey expert will certainly be able to predict the FMV fairly accurately.

In establishing a value, factors like customer or vendor concentration, company and industry growth rates, profit margins, size of the company and strength of the management team come into play. Such factors are typically captured in an interview with the business owner and are then assessed individually and considered in totality when determining the evaluating factors.

For example, a company’s customer concentration with a single customer representing more than 50% of the company’s business, dictates a different deal structure than a more commonly distributed customer revenue. Alternatively, companies with little customer concentration operating in attractive growth markets such as medical, or utilizing unique processes or materials, typically can demand higher than average valuations.  

It is common practice to utilize the most recent trailing twelve to thirty-six months in calculating the FMV, with some weight also given to future projections. Good business valuation in Connecticut firms typically consider a 7 year time frame – the past three years, the current year and three years into the future. For example, if the company has experienced a temporary decline in cash flow due to a customer loss, an average over such time span may be more appropriate to use. Reviewing such time span, also allows to detect growth or decline trends.

Additionally, it is common to normalize cash flows to adjust for non-recurring revenues and expenses (e.g., litigation expenses, professional fees, etc.), non-business/personal-related expenses (e.g., owner’s car leases, payments to non-working family members, country club fees etc.), non-market facility lease rates and/or owner compensation above or below fair market value.

However, adjustments typically not accepted by investors are ineffective marketing campaigns, R&D expenses due to failed product launches or bonuses paid annually but considered “discretionary.”

Finally, it is important to note the difference between Fair Market Value and Shareholder Value with the shareholder value defined as the FMV plus cash and cash equivalents minus third party debt (e.g. bank debt and capital leases).

In sum, applying a single multiplier is never a good approach, and will easily lead to an incorrect valuation approach. Accredited business valuation firms are fully aware of such, and thus, always use a multiple, weighted valuation approach.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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