💣 You'll learn: Why a "standard multiple" can be dangerously misleading & how to spot inflated EBITDA numbers before making an offer

⏱️ Read time: 4 minutes

🔍 Real deal analyzed: Commercial landscaping company, $1.5M claimed EBITDA, 40+ contracts across three markets

THE REAL DEAL

Ever looked at a business listing and wondered if the price was just pulled from thin air? This week, I walked a client through one of the most eye-opening valuations I've seen. What started as a "straightforward" $7.5M asking price turned into something far more interesting.

When my client first showed me the teaser, it looked solid: $1.5M EBITDA from a commercial landscaping company, 40+ contracts, three major markets. The broker confidently cited "standard 5x multiple." But something wasn't adding up...

DEAL DETECTIVE

The Million-Dollar Details Most Buyers Miss

Two numbers buried in the 137-page broker package changed everything. First, 45% of revenue came from just two customers. Second, both contracts were up for renewal in 2025.

But here's where it gets interesting. The seller's $1.5M EBITDA wasn't telling the full story. Management salaries were well below market rate, requiring a $180K adjustment. Equipment replacement had been delayed, creating a $120K annual impact. And some revenue was non-recurring from pandemic recovery. After normalizing these numbers, true EBITDA was $1.2M.

VALUE VAULT

The Science (and Art) of Business Valuation

For sellers: Quality businesses at this scale often command 4.5-5.5x EBITDA. The path to top dollar requires customer diversification, with no client representing more than 15% of revenue. Long-term contracts should have staggered renewals. Most importantly, the business needs documented systems that don't rely on owners.

For buyers: We valued this at 4.75x adjusted EBITDA ($1.2M), reaching $5.7M. This multiple reflected several factors, including the strong market position, which warranted a premium.  However, customer concentration and contract renewal risk led to discounts. The quality equipment and systems provided some offset.

The Outcome: My client made an offer at $5.7M with earnouts tied to contract renewals. Next week, I'll reveal the creative deal structure that got both parties to yes.

Stay rebellious,

kinza

p.s. here’s my small business valuation guide with a free calculator on the last slide.

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