Calculating Seller's Participation into Valuation

Member resources:

Frequent asked questions:

What is Searchfunder.com?

Searchfunder.com is an online community of searchers, investors, lenders, brokers and other professionals. Over 80% of those involved in searchfunds maintain a Searchfunder account to help them network, hire, and mentor others.

What are the benefits of membership?

In addition to accessing the most active online network of business buyers, Searchfunder licenses research that is simply not cost effective for individuals. Access over 15,000 industry reports and 50,000 transaction financials. You also get monthly credits for contact information for your company sourcing campaign with the option to purchase more at drastically discounted rates. Searchfunder has pre-purchased access from these data providers in order to empower individual buyers and to help searchers level the playing field versus private equity.

Do you have deals?

While we are primarily a buy-side network, we do have hundreds of brokers that regularly post deals to the community.

Can I find an internship on Searchfunder?

Absolutely! We have the industry's largest intern job board. If you are considering a search, the first step is to help another business buyer so you can hit the ground running.

What does it cost?

Searchfunder is a subscription service. We offer flexible monthly, annual and lifetime memberships.

Monthly

$79 / month

Annual

$19 / month

Lifetime

$432 / once

Those who maintain an account with us for over 4 continuous years are permanently added to the community without the need for a membership.

Do I need an MBA to join?

While a large number of our members come from dedicated programs at Harvard Business School, Stanford GSB, Chicago Booth, and other top programs, searching is no longer reserved for the elite. With the current abundance of dry powder in private equity, and an increasing number of business owners reaching retirement age, good deals rarely go unfunded.

Post a question, deal, job, etc...

Make a post...

Complete registration to post.

by a searcher from Williams College
in Cleveland, OH, USA

1yr ago

Calculating Seller's Participation into Valuation

Hello Searchfunder Community,
I am curious as to how fellow searchers are valuing small manufacturing businesses when (1) the seller is a full-time, active participant in the company and (2) the business is sub $3M revenue. I'm getting a lot of brokers that propose EBITDA numbers with the seller's salary as an "add back" while proposing a sale price with multiples in the 4-5x range. From my limited perspective, I thought brokers and other professional valuators would include a seller's salary as a rightful expense (as long as it was market rate), that would not contribute to EBITDA. Are brokers damaging sellers' expectations of a valid offer from buyers or am I just too new to this world and need to up my offer amounts? Would welcome thoughts!

0 Likes

367 Views

reply by a searcher 1yr ago
in Honolulu, HI, USA

Simple formula: What ever they take out of the business (Including vacations, salary, wife's car, personal expenses, etc) - Market rate for a manager in that industry = The add back.

Many operators squeeze everything they can from the business so they don't have to pay taxes.

I hope this helps!

reply by a searcher 1yr ago
from University of Pennsylvania in Chicago, IL, USA

Put aside what the Seller's actual salary is. Add the entire thing back. Then, calculate the fully-loaded cost of replacing the seller (including payroll tax withholding, benefits, etc.), and deduct that out. If the Seller is paid above-market, that is good news and net will increase EBITDA, vice-versa if they are paid below-market.