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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“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

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
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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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