Welcome to Hedgestone Academy
The comprehensive broker training program trusted by over 400 business advisors. Master EBITDA, valuation, recasting, and the art of selling businesses.
Broker Certification Program
The comprehensive broker training program trusted by over 400 business advisors. Master EBITDA, valuation, recasting, and the art of selling businesses.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It represents the earnings of a business after eliminating non-cash expenses for depreciation and amortization and after eliminating the expense of interest on debt.
EBITDA is an aggressive accounting tool used to announce and analyze profitability and to create a picture more indicative of the company's true value. A multiple of EBITDA can determine the selling price of a business.
This makes EBITDA an easier tool for comparing the financial health of various companies and giving investors a better sense of how much money a company might generate before payments to creditors or the government.
The common multiplier ranges between 2x and 10x EBITDA, most often 2.5x to 6x in the small business marketplace.
1. What does EBITDA stand for?
2. What is the most common EBITDA multiple range for small businesses?
3. Which of the following would INCREASE the EBITDA multiple?
4. Why is interest excluded from EBITDA?
We recommend using at least two methods for a more accurate picture. Unless you are intimately qualified, let the expert choose for you.
| Method | Best For | Key Consideration |
|---|---|---|
| Net Assets | Quick disposals, asset-heavy businesses | Rarely reflects true value; book value is often an illusion |
| Excess Earnings | Businesses where risk is a major factor | Forces seller to look from the buyer's viewpoint |
| Economic Cap Rate | Projecting ROI for the buyer | Requires known industry capitalization rates |
| Market Comparisons | Larger businesses in active markets | Small businesses difficult to compare due to operational differences |
Assets include tangible (fixtures, inventories, accounts receivable) and intangible (goodwill). Net worth is adjusted for bad debt, obsolete inventory, and value of fixtures/equipment. A small amount is added for goodwill.
Each factor is scored 0-5 (0 = highest risk, 5 = well-managed and growing). Factors include: five-year revenue trend, capital structure, leverage, earnings, cash flow, employee turnover/compensation, market penetration, brand identification, customer satisfaction, and intellectual capital.
1. How many valuation methods should you use?
2. The Net Asset method is best used when:
3. A simple way to factor goodwill is to:
Here is something that should never happen: evaluating the worth of your business for the first time because you're thinking of selling. Any owner should periodically determine value throughout the life of the business.
We help the seller project cash flow over five or more years using recast earnings. Tangible assets set a minimum selling price. Intangible assets (goodwill, customer lists, trademarks, patents, leases, permits, contracts) raise the selling price.
You need an accountant, attorney, and financial advisor experienced in EBITDA and recasting. Be forthright -- demand to know the tax ramifications, required documents, and exact costs.
1. When should you FIRST determine your business's worth?
2. The price of a business is right when:
3. Which assets can raise the selling price above the minimum?
If expectations of business worth are far from met, there are things to increase the bottom line, even if it takes a few years. It might save time to raise the value by owning it a bit longer so it sells more quickly at a higher price.
Full-time employees drawing large salaries often perform work that can be done by part-time resources at a fraction of the cost.
The Bookkeeper: Our firm had a bookkeeper earning $80,000/year. She retired. We replaced her with an outsourced service for $12,000/year. Net savings: $68,000 annually.
The Switchboard: A company had two operators costing $60,000/year. They switched to an off-site service for $250/week. Net savings: $48,000 annually.
If a business has low fixed costs, few assets, and little retained earnings, the sales multiplier technique may be appropriate -- often utilized for professional practices or service-related companies.
1. How much did the firm save annually by outsourcing bookkeeping?
2. When is the sales multiplier technique most appropriate?
3. What is the primary factor integral to the eventual sale of any business?
It is virtually impossible for a company to represent itself and get the best terms. Like selling a car: if you chase the buyer, they know you're desperate and will low-ball you. An impartial intermediary is essential.
15 years in business, over 400 business advisors, team approach with at least four brokers per listing, 10 million+ monthly social media views, proprietary CRMs, over a million buyers, full legal team and accounting staff.
According to the SBA, 70% of small businesses never sell. Reasons: owners don't realize they have a sellable commodity, unrealistic pricing, or unrealistic terms.
1. What percentage of small businesses never sell?
2. What is a red flag when interviewing a broker?
3. How many brokers does Hedgestone assign per listing?
Keep sale news away from employees, suppliers, and customers. If the wrong people find out:
Key employees should be told before they find out from third parties that a transaction is done.
Fraud has no place in selling a business. Understatement of expenses, overstatement of income, or failure to divulge known hazards can break your deal and lead to legal action.
The Car Dealership Lesson: Early in my career, I noticed oil seeping into the ground at a used car dealership -- environmental issues. I didn't tell the buyer. They found out, suspected I knew, and backed out entirely. With the next prospect, I disclosed everything upfront. That deal went through smoothly.
The Pizzeria Franchise: Just before closing, the buyer discovered each franchisee would have to refurbish their store at over $100,000. The seller didn't know about this requirement. The deal broke up. With the next buyer, there was full disclosure -- and the deal went through.
1. When should you disclose adverse information?
2. What happened when the car dealership's issues were hidden?
3. Regarding key employees during a sale, you should:
The SBA reports that 90% of small businesses fail in the first 10 years. Most don't fail to make a living -- they just fail to show a profit on the books. With proper recasting, even a money-losing business can be sold.
The $650K Revelation: A seller claimed he was losing money. Upon examination, he wasn't making $300,000/year as he thought -- he was earning $650,000/year. He was taking so much from the business (personal expenses, cell phones, insurance, car, pool maintenance, entertainment, clothes, mortgages) that he didn't realize his true income.
Recasting restates several years of financials to accurately reflect the true profit and show how the business would look with a new owner. It determines the SDE (Seller's Discretionary Earnings).
The Cell Phone Example: A business owner gives family members cell phones at $60/month = $4,960/year. At a 10x multiple, that's $50,000 in added value. Imagine putting back $60,000 in expenses -- that's $600,000+ in added selling price.
1. What does SDE stand for?
2. Recast financials should NEVER be submitted to:
3. $4,960/year at a 10x multiple adds how much to selling price?
4. How many years of financials should be recast?
Also called an Offering Memorandum, SIM, Deck, Business Plan, Confidential Description Memorandum, or "The Book." Its function: encourage buyers to take an in-depth look.
1. A selling memorandum must accomplish which two tasks?
2. Which is NOT another name for a selling memorandum?
3. Who should help create the selling memorandum?
Complete all 10 questions. You need 80% or higher to earn your Hedgestone Academy certificate.
1. EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and ___?
2. The common EBITDA multiple for small businesses is:
3. What percentage of small businesses never sell (SBA)?
4. Recast financials should be labeled as:
5. The car dealership lesson teaches us:
6. When a business has little profit, selling price is set by:
7. First step when recasting financials:
8. A selling memorandum is also known as all EXCEPT:
9. Three things your accountant and lawyer MUST have:
10. How many business advisors does Hedgestone have?
Has successfully completed all 8 training modules and passed the comprehensive final exam covering EBITDA, Business Valuation, Recasting, and the Art of Selling Businesses.