When it comes to valuing a professional service business, intangible factors such as customer relationships, staff experience, and reputation play a larger role than tangible assets. As such, business valuation experts often use the revenue approach to determine the value of a company in this field. Earnings multiples usually range between 6 and 8 times EBITDA, or between 11 and 14 times net income after taxes. Sales multiples usually range from 1.3 to 2.2 times revenue, depending on profitability. Profit margins for professional services companies typically range from 15 to 30% of revenues (EBITDA).
One approach to valuing a company is to advocate for a theoretical value based on the current revenue potential. This could include the current earnings plus the additional profits that could be earned if additional leads were serviced. For companies that offer more comprehensive services such as business development, customer relationships, and ongoing service delivery, there is a greater risk involved. This means that the company is worth more to the owner than it would be to anyone else due to the existing infrastructure in place. In the consulting services industry, a profit period of one to two years is common. When selling a service company, it is typical for the buyer to request that the owners stay for a period of time in order to ensure continuity of service delivery and business development.
Smith Schafer specializes in meeting the needs of professional services companies, construction companies, transportation companies, and non-profit organizations. This article has provided an overview of how to value a professional service business. Understanding this topic is essential for entrepreneurs and senior leaders in this field. It is important to consider all methods when determining value and take into account intangible factors such as customer relationships, staff experience, and reputation. Valuing a professional service business requires an understanding of both tangible and intangible factors. The revenue approach is often used by experts in this field as it takes into account both current earnings and potential future earnings.
Profit margins for these businesses typically range from 15-30% of revenues (EBITDA). Additionally, buyers may request that owners stay on for a period of time after the sale in order to ensure continuity of service delivery and business development. When valuing a professional service business, it is important to consider all methods available and take into account intangible factors such as customer relationships, staff experience, and reputation. Smith Schafer specializes in meeting the needs of professional services companies, construction companies, transportation companies, and non-profit organizations.
