A key income-based small business valuation method that establishes the business value as a multiple of an economic benefit adjusted for net working capital, non-operating assets and long-term business liabilities.

Multiple of Discretionary Earnings method establishes the business value by multiplying the seller's discretionary cash flow by a composite valuation multiple which is derived from a number of business, industry, market, and owner preferences factors.

The method is especially well suited for valuing owner/operator managed businesses whose purchase is driven by both economic and lifestyle considerations.

Value of a Company as Multiple of Earnings

Valuation multiple defined by business performance factors

Some key factors that are accounted for by the Multiple of Discretionary Earnings valuation method include:

• Business earnings historic track record.
• Industry and business growth prospects.
• Acquisition financing terms.
• Competitive pressures.
• Business position in the market place.
• Risks associated with market and customer concentration.
• Location and facilities.
• Quality of management and staff.
• Ease of operation which makes transition to new ownership feasible.
• Overall business desirability.