What is an Extra X?
An extra X means getting another multiple to your company’s valuation. Let’s say that companies in your industry are currently selling for a four multiple of EBITDA. That means if your company makes $1 million in EBITDA per year your company would sell for $4 million. Getting an extra X in this case would mean that your company would sell for $5 million. The goal for anyone selling a company is to get more for the company.
We all know a company that has sold at a “Fire Sale” price – During the Dot.Com bust I helped sell a company in Seattle for less than the cost of the new video streaming center we had just paid millions to build. It was pennies on the dollar and in my opinion a dumb sale (story for another time.)
Let’s say you work hard and increase the EBITDA from $1 million to $1.1 million. That is great and based on your overall net operating percentage that might just have meant an extra million in revenue. That equates to a value of $4.4 million. Great Job! What if instead you worked to get an extra X for your business that would make your company worth $5 million – that would be even better!
So I contend that if you are in the process of selling or planning to sell your business you should spend time learning how to get an extra X. Think risk reduction, key leave behinds, building what others need.