The ongoing consolidation in the portable restroom industry makes business valuation essential. Experts receive daily calls from PROs asking how to determine the value of their business, and they recommend every PRO figure out their worth. Don’t be caught off guard if the unexpected occurs. Instead, sit down now and do the math. Figuring out your company’s worth sounds complicated, but your accountant will help. This vital step is critical to your business plan and affects your future growth. It makes sense to set a real value on what is often your biggest asset — your business.
PROs use a company’s actual value when considering retirement, buying out a partner, or doing estate planning. It’s one of the first numbers that a buyer or investor requests. It’s important to know your business’s value early on to avoid unexpected problems and ensure you’ll be able to sell your business if needed. Those who don’t understand this figure and face an unexpected event are left scrambling. It’s important to know the worth of your business as part of your future planning and growth strategy.
Apply the EBITDA formula to calculate your company’s actual worth and figure out what a buyer would pay. Your tax returns won’t give the complete picture, whereas your EBITDA is accurate. The value of your company equals Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). Start with your earnings, then add back in your interest and taxes. Next, determine your depreciation and cost of amortization. Then, one by one, add these numbers back in. Now you have your EBITDA.
Purchasers will ask for your EBITDA, then offer a multiplier of that. Multiplier factors depend largely on geography, quality of equipment, and reputation in the market. It’s a negotiable figure. According to Mike Adams, Managing Director of PolyJohn, “Portable restroom companies have sold for three to six times their EBITDA.” This estimate depends on industry and market reports for your area. Determine your growth potential and overall reputation. By understanding the various multiplier factors, then you get an accurate value.
Appraising your company helps you understand your strengths and weaknesses and put effective strategies in place. For example, working on your reputation and having a plan for maintaining trucks and restrooms are actions that provide additional value. Knowing your company’s worth helps you stay focused. Instead of getting caught up in the day-to-day operations, you’ll be aware of the marketplace and identify areas for potential growth. It benefits your portable restroom company by helping you create long-term value.
Knowing your business’s value is essential when planning for changes like a sale, partner buy-out, retirement, or succession. It also measures your company’s health, current marketplace conditions and future strategies. Understanding true worth gives the PRO a realistic perspective of their business by taking several factors into consideration. Increase growth, change your mindset and plan ahead by calculating your company’s value. Don’t skip this important step.