What the business is worth

What you can ask

Ask in plain language, the way a buyer or a broker would ask you.

• "What is the business worth?"
• "How about at 2x?"
• "What is a fair multiple?"
• "What was our EBITDA over the last twelve months?"
• "How much of our revenue is recurring?"
• "How concentrated is our revenue?"

A question about value reads the trailing twelve months unless you name another window. The answer is a table: each method with the value it implies, the figure that value rests on, and what the business owes customers shown beside it, never subtracted from the value.

The figures a buyer reads

Every figure comes from your own records, the same ones behind the Financials, Profitability and Cost Center pages. Nabu does the arithmetic in code; the writing never works out a number on its own.

• EBITDA. The operating profit for the window from the Financials summary: recognized revenue less variable costs and the window's fixed cost. Loan payments and owner draws are not counted as costs. Nabu holds no depreciation, amortization or tax costs, so EBITDA reads the same as net profit.
• EBITDA margin. EBITDA as a share of recognized revenue in the same window.
• Seller's discretionary earnings (SDE). EBITDA plus the owner's compensation, the owner's personal expenses run through the business, and the one-time costs whose dates overlap the window. These three come from your valuation settings, described below. Each such cost is counted once, in full. The owner's compensation and the personal expenses are read month by month; when the owner's pay is known for only some months of the window, the other months add nothing, and the answer says so.
• Annual recurring revenue. The monthly membership billing in force at the end of the window, times twelve. It is not revenue and not a forecast.
• Recurring revenue share. Membership dues billed in the window, at enrollment and at renewal, as a share of recognized revenue in the same window.
• Revenue growth. Recognized revenue in the window against the same window one year earlier. When your records do not reach back that far, Nabu says so instead of giving a figure.
• Client concentration. The share of revenue that came from your ten highest revenue clients, read from the Profitability page's client figures, with walk-in sales counted in the total. No client is named.
• What the business owes customers. Shown as six rows, one for each kind of balance, always in the order listed here and never added into one total. Membership credit is every dollar of membership credit a customer can still redeem: the unused credit active members hold, and the credit still redeemable on memberships that are not active, such as a suspended member's, or a cancelled or ended one's within the plan's redemption window, as the membership liability counts it. Prepaid membership terms is the unearned share of terms paid ahead. Both come from your membership records. Packages is package sales less the package credit clients have used, and gift cards is what clients paid for gift cards less what they have paid with them, each from the earliest payment Nabu holds. No record tells Nabu when a package or a gift card expires, so nothing is taken out for expired ones and these figures can read high. Packages and gift cards bought before your records began are not held, so they can also read low, even below zero. Each of these four figures is an estimate. Prepaid cards has no figure of its own: your records count a prepaid card as a gift card, so prepaid cards are within the gift card figure, and the row says so rather than count them twice. Loyalty points has no figure, because your records do not hold them, and the row says so.

The multiples are yours

Nabu does not judge what your business would sell for. A multiple is a setting your business holds: a low and a high for each method, SDE, EBITDA and revenue. Nabu works out the value at each end of your range.

When you name a multiple in the question, such as "at 2x", Nabu works out the value at that multiple as well.

When you ask what a fair multiple is, Nabu answers with your own range and tells you that it is yours, one sentence for each method whose range is set: "Nabu does not judge a multiple. This business holds 2.5x to 3.5x for seller's discretionary earnings in its settings; at those, the value is $29,828 to $41,759."

A method whose figure is zero or a loss over the window gives no value at its multiples, and the answer says why.

Setting it up

In Setup, under Business Costs and Rules, the Valuation section holds these settings. Each one takes effect from the date you choose, and the months before that date keep the settings they were read under.

• Owner's compensation, per month. Pay the owner takes through payroll. Draws are not entered here; they are already left out of EBITDA, so Nabu never adds a draw back. When a staff record is linked to a login that holds the Owner role, Nabu reads the owner's pay from it: the monthly salary, or the hourly rate times the weekly hours on the record. When more than one such record is found, their pay is added together. The section shows that figure. An amount you enter here takes its place.
• Personal expenses run through the business, per month. One monthly amount.
• One-time costs. Each with its amount and the first and last day it covers.
• Multiples. A low and a high for SDE, for EBITDA and for revenue, entered as a number such as 3.0.

Changing these settings needs setup access.

When Nabu cannot answer

• A range is not set. Nabu answers the methods whose ranges are set and names each setting that is missing, such as the multiple range for EBITDA. It never fills in a multiple of its own. When no method can be answered, Nabu says which settings are missing and where to set them, and that answer uses no credit.
• The owner's compensation is not known. When no linked staff record states the owner's pay and none is entered in the settings, Nabu says so and gives no value on SDE.
• Fewer than twelve months of records. Nabu answers over the months it holds and says so.
• A figure the records cannot support. Each figure carries the same limits it has anywhere else in Ask Nabu, and the answer names them.

Credits

A valuation answer is an analytical answer, so it uses one Ask Nabu credit, the same as any other answer about your numbers. Two answers use none: what a fair multiple is, which Nabu answers from your own settings in one sentence for each method, and a question Nabu cannot answer until a setting is entered. While Nabu works, the progress line reads "Working out what the business is worth".