In this deep-dive article, we share insights from Dr. Willem Keijzer, Managing Partner at CNX Transaction Partners, on how you can assess the value of your consultancy using EBIT and sales multiples.
In this article...
Read time: 3 minutes
There are many ways potential buyers could analyze the value of your consultancy, making it difficult to know what to prioritize when improving your business.
Fortunately, Dr. Willem Keijzer, Managing Partner at CNX Transaction Partners GmbH, joined Sammy Gebele on the LEADERS IN CONSULTING Podcast to simplify this issue.
In this article, we use insights from Wim to explain what figures buyers use to calculate the value of your consultancy, and which metrics you should care about most when selling.
When a buyer evaluates your company, they want to see either your EBIT (Earnings Before Interest and Taxes), sales multiples, or a combination of the two.
Which metric you use usually depends on the size of your company. Smaller companies typically use the EBIT multiple, whereas larger companies might calculate the EBIT and revenue multiples and use the most advantageous figure.
The average EBIT multiples for different business sizes are shown below:
What constitutes a "large company"?
According to Willem, there's a rough cutoff at around $20 million in revenue.
“Multiples are a useful tool, but they need to be used with caution. The 'true' value is likely a compromise between EBIT and sales multiples and is heavily influenced by the specific characteristics of your company.” - Dr. Willem Keijzer, Managing Partner at CNX Transaction Partners
Willem identifies future cash flow, growth, and stability as the three core metrics that buyers consider when evaluating a consultancy.
Understanding what a potential buyer looks for in a consultancy is essential for a realistic self-evaluation. When a buyer investigates your business model or sends lawyers to inspect your contracts, they are probing your business's future cash flow, growth, and stability.
"By understanding these key considerations, you're better equipped to address any concerns the buyer might have and to position your consultancy as a strong and viable investment." - Dr. Willem Keijzer, Managing Partner at CNX Transaction Partners
Understanding the intricacies of company valuation and being aware of what buyers look for in a consultancy can equip you with the necessary tools to accurately assess and potentially increase the value of your consultancy. While it may be complex, taking the time to understand these factors can lead to significant benefits in the long term.
"Remember, a buyer is investing in the future of your company, not its past. Focus on future cash flow, growth, and stability to truly unlock the value of your consultancy." - Dr. Willem Keijzer, Managing Partner at CNX Transaction Partners
Invest the time in understanding these intricacies, and you'll reap the benefits when it comes time to sell your consultancy.
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