Notes for Owners
What is my business actually worth?
Everyone wants to talk about the multiple. The multiple is the easy part, and it is roughly public information. The number the multiple gets applied to is where almost every disappointing outcome starts.
If you have asked around, you have a range in your head. Six times, maybe seven. Someone told you healthcare services trades higher than that, and in some segments it does.
Here is the problem with carrying that number around: it is a multiple of something, and the something is almost always overstated the first time an owner calculates it. Not dishonestly. The conventions owners use are simply different from the conventions buyers and lenders use, and nobody tells you until you are ninety days into diligence and the number has moved.
The one that moves the number most: your own pay
In an owner-operated business, and especially in a clinical one, the owner is doing two things at once. They own the business and they work in it. Those are separate economic roles, and a buyer prices them separately.
Whatever you pay yourself today is not the relevant figure. The relevant figure is what it would cost to replace the work you personally do at market rates. If you are a producing owner taking modest W-2 comp because the profits come to you anyway, then the earnings you are looking at include the value of your labor, and that labor leaves with you.
An owner-operator who under-pays themselves is quietly reporting their own salary as profit. In a practice with meaningful owner production, correcting this alone can move stated earnings by 30 to 50 percent. At a six times multiple, that is not a rounding error, it is most of the deal.
A worked example
Illustrative only, and deliberately not a real company. A multi-site specialty services business, roughly $9M of collections, owner is a working producer.
Same business, same cash in the bank, same happy patients. At six times, the presented number implies $14.4M and the defensible number implies $9.3M. Nobody lied. The owner used owner conventions and the buyer used buyer conventions.
Worth saying plainly: the rent line is often recoverable. If you own the building, you may be better off keeping it and signing a market lease with the buyer, in which case that $140K comes back to you as rent instead of as purchase price, frequently on better after-tax terms. The adjustment is real, the loss is not always.
What actually moves the multiple up
The multiple is not a fixed industry number. It is a judgment about how much of this business survives your departure. Buyers pay up for the things below, and owners consistently under-credit themselves on several of them.
- Revenue that does not route through you. The single largest driver. If new business comes from referral relationships that are institutional rather than personal, you are worth more.
- A real number two. Someone who already runs the day to day, is staying, and is compensated well enough to want to. This is worth more than most owners believe, and it is the cheapest thing on this list to fix.
- Payer and customer diversification. Concentration is the fastest way to compress a multiple. One customer at 40 percent of revenue changes the risk profile more than most owners expect, and it usually shows up as structure (earnout, holdback) rather than as a lower headline price.
- Contracted or genuinely recurring revenue rather than project or episodic work.
- Financials a lender can underwrite. Reviewed statements, clean cutoffs, and a general ledger that ties. This does not raise the multiple so much as it prevents the multiple from being discounted for uncertainty, and it materially shortens the time to close.
The question behind the question
Most owners who ask what the business is worth are not actually trying to sell this quarter. They are trying to find out whether the last twenty years added up to the number they hoped, and whether they have optionality.
If that is where you are, the useful move is not to call a banker. A sale process is expensive, disruptive, and hard to un-start, and it puts your staff and your referral sources on notice whether or not you go through with it. Getting a defensible earnings number is a quiet exercise you can do with your CPA in a few weeks, and it is the input to every other decision, including the decision to do nothing for three more years.
BDE Capital is an independent sponsor. We acquire lower middle market companies in healthcare services, B2B services, and trade schools, generally starting at $2M of EBITDA, and hold them long term rather than on a fund clock.
We look at defensible earnings, not presented earnings, which is why we would rather tell you where a number is soft early than discover it in month three. If you want a read on what your business would look like to a buyer, we will give you our honest arithmetic, including the parts you will not enjoy.
Send a one-page summary, or just tell us what the business does and roughly what it earns. Nothing confidential at this stage.
If it looks like a fit, we sign your NDA or your banker's. Then we want a CIM if you have one and three to five years of P&L if you do not. That is enough for a real answer. Tax returns, customer lists, and anything involving your employees come much later, or not at all.
The answer is usually fast, often the same day we see financials, and it comes with a number and the reasons behind it. Most of the time the answer is no. When it is, you get the reasons in writing. At no point do we contact your employees, your customers, or your vendors, and anyone we bring in to look signs the same NDA you signed with us.
On the money, since one of these notes tells you to ask: we are an independent sponsor, so capital is raised against a specific deal rather than pooled in a fund. That is exactly why there is no clock forcing a sale in year five. If you want to know who is behind a deal before you give anyone exclusivity, ask, and we will tell you.
You will hear back within two business days.
No process, no listing, no fee. One conversation about what the number really is.
team@bdecap.com