Do the multiples matter? Why pricing based on SDE might hurt you.

[@ngussie84]

Thanks a lot Mr. Barnette. You referred me to this video and it was a big help.

[@DavidCBarnett]

Glad to help

[@flabbywalrus]

Hi David, really great content as always. Would you be able to make a video (or point to one you've already made) on what differentiates a business from SDE vs EBITDA valuation? Is there a threshold where one becomes more relevant than the other ( I think you've mentioned before it relates to be able to put a management team in). On a more practical side and from a strategic point of view, what is your experience with communicating what changes you are likely to make for a business you are looking to buy? My limited experience has been that people take it as a personal insult if you suggest that you would operate "their baby" differently from how they have been doing it for 10-20 years but at the same time why wouldn't you be open and honest with what you are going to do, especially if there is going to be some form of transition or overlap.

[@DavidCBarnett]

Here it is: kzbin.info/www/bejne/pnOUi4t4qs6fe9U Thinking you know better about how to run a business than the person who has run a sucessful and profitable business for decades is hubristic. Unless, you're an expert in that industry, ie you run a $20M plumbing business now and are adding on a much smaller one. You should be realistic and honest. Just say 'I want to learn everything from you about how you run the business and why and if we find things we can improve in the future we'll consider them.' Without actually experiencing running the business, that's all you can do. The assumption that the current owner is incompetent is inconsistent with their demonstrated success.

[@PatriciaGreaux]

Thank you for all of the content you have provided David. Always great insight. I recently purchased your buyers advantage program and so thankful that I did as I continue my journey to purchase a SMB. I am currently looking in the landscaping industry here in north Texas. Any thoughts multiples for this type business?

[@DavidCBarnett]

Service businesses with little barriers to entry have low multiples. Don't forget about capex as those machines wear out. So, for landscaping, the maintenance vs construction mix is important to know as well as the residential vs commercial and the terms of payment/contracts. There are a lot of different reasons why these businesses could get a higher or lower multiple. Read a book or two about running one of these businesses before you start talking to sellers.

[@Ali-lv1pi]

Which databases?

[@DavidCBarnett]

Private business sale transaction databases. There are a few out there that people like me and business brokers subscribe to. I talk about them in other videos as well. Time for a weekend of bingeing my videos!!!

[@Ali-lv1pi]

@@DavidCBarnett Nothing I would rather do! Can you point me one about these databases?

[@lorenzotillmaniii4273]

what’s the median?

[@DavidCBarnett]

At one time, I used to look for this. But there are more bad data at the higher end of the spectrum so this would skew the value of knowing the median. Now I look for sample transactions that resemble my subject and then test them to see if they make sense or not.

[@goldstandardaviation1667]

basically its a crap shoot from what you say.

[@DavidCBarnett]

The deal has to cash flow and make sense for the risks. People get hung up on these topics instead of worrying about what works for them.