Business valuation based on average of last 3 years

November 25, 2021
by a searcher in Chicago, IL, USA
Hi all,
I would like your thoughts and experiences with a valuation. I'm currently looking at a business that acheieved the following EBITDA:
2018 600k
2019 $1.3MIL
2020 $2.3MIL
2021 $2.3MIL (Dec is forecast)
Would you average 2019, 2020 and 2021 to get the EBITDA or are the last two years consistent enough to use $2.3MIL as the EBITDA?
I am asking myself "how would the banks value this"? Thank you in advance for your help.
from The University of Chicago in Chicago, IL, USA
Few questions they come to mind are a) is this a project dependent business? What if the projects similar to last few years will not continue? (Example: During Y2K, many companies had few great years that did not continue. What if the growth is due to a new product line or a patent or a geographic expansion? If so, the future EBITDA may be bigger than than of last few years.
I represent sellers. Before I take on an engagement, I spend serious amount of time understanding the "drivers". I will use average, or last year or TTM EBITDA depending on what the "drivers" are.
from University of Southern California in North Palm Beach, FL, USA
Above covered more in my book: How to Buy the Right Business the Right Way https://www.amazon.com/dp/###-###-####