This helps determine what amount of capital you need to maintain your lifestyle to achieve your goals at the exit point. You find out how much money you need to retire, especially if you’re using your restoration business to get to a retirement point. The post-exit amount needs to represent that.
Once you calculate this, the results represent the amount of money you walk away with.. Why divide by 81%? That’s due to the fact that the IRS deducts a 19% capital gain from the sale amount.
We divide the number by the number 8 because the most common multiples in the restoration industry range from 5 to 8. These are called EBITDA multiples which are considered the “multiples of the business.” EBITDA stands for earnings before interest, taxes, depreciation, and amortization. If you get a higher multiple, you get more valuation; if you get lower, you get less.
Essentially you are taking EBITDA (earnings before interest, taxes, depreciation, and amortization) and subtracting the ITDA (Interest, taxes, depreciation, and amortization) so you can only be left with the earnings.
If you don’t know your target profit percentage, use 20%, it’s considered the industry average net profit. The result of this signifies the amount of revenue you need to get the “perfect exit.”
This will ultimately show you how much more income you have to grow to get to the perfect exit amount.
This will show you the percentage of total growth you need to get from where you are currently to end up with your “perfect exit.
If you want to accomplish this in 5 years or 10 years, you can divide it by any of those numbers. The result is the growth percentage year over year that you will need to maintain from now until the “perfect exit.” This will be the money you expect to walk away with you’ve achieved the perfect exit amount.
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