Start With: Earnings before Taxes for the most recent trailing twelve month period.

Exclude: Interest Expense, Financing Cost, Depreciation, Amortization, Donations that aren't necessary to promote the business, Interest Income, Gains or Losses on Asset Sales.

Remove: Unusual or extraordinary Professional Fees (i.e., Acquisition, Divestures, One Time, or Personal).

Normalize: Management Compensation to Market Value (Salaries, Wages, Bonuses, Perks, Travel, Entertainment, Automobile, Insurance, Management Fees, etc.).

Note-Not all changes bring EBITDA up, some may bring EBITDA down.  For instance if the owner is not taking a salary but is performing daily operation duties than a replacement cost amount must be subtracted from the EBITDA to adequately reflect the lack of that expense.

Once an adjusted EBITDA is arrived at and it is determined the seller is reasonably profitable, the company will then be valued at a multiple of this adjusted EBITDA.

Some valuations include working capital (the difference between current assets less current liabilities) as part of their multiple particularly in ProfessionalStaffing Service sectors.

So when discussing multiples it is vital to know what the buyer is or isn't including in their multiple number to be sure you are making fair comparisons between buyers. Depending on the Buyer, sometimes a 4X will net you more than another buyers 5X. Multiples and acceptable adjustments are always buyer-specific.

The bottom line is that the multiple is just a number arrived at by taking into consideration ten separate operating characteristics which this newsletter published on March 8, 2012.

There are other methods of determining the value for less profitable or newer staffing operations which are often expressed as a percentage of annual gross margin dollars generated. This approach is used when the business is new, the profits are relatively low or a significant overhaul of SG&A expenses would improve the profit.

The 2012 multiples we recently published are repeated below for your reference now that you know how to determine the adjusted EBITDA of your company.

Note: The chart above assumes the seller will retain their Balance sheet.

There are always exceptions to the chart above, often when the Gross Margins are much higher or much lower than sector and industry standards, is one example.  This is a guideline only and shouldn't be relied on until a seasoned M&A professional advisor has reviewed your specific company characteristics.  We will provide this service at no cost, while some other advisors may charge, so it's a good idea to check first.  You are much better served to work with a staffing industry M&A specialist rather than a generalist M&A advisor because the prior specialist will know and be more up to date on the staffing industry.

An experienced Staffing Industry Advisor can assist you in many ways to  ensure you maximize the valuation of what is often your largest asset.