Kjael Skaalerud’s Post

The #1 Factor to Determine Max Valuation in Micro SaaS...is debt financing. Here's why, plus a free valuation calculator... Most buyers in the $500,000 to $2 million valuation range use SBA loans, which come with specific requirements. The SBA requires a Debt Service Coverage Ratio (DSCR) of 1.25, meaning the company needs $1.25 of income for every $1 of debt payments. In simpler terms, the key question is: Can the business afford itself? Does the Micro SaaS firm generate enough income to cover the loan needed to buy the business? As the valuation rises, so do the loan and debt payments. At some point, the valuation requires a loan that breaks the DSCR requirements. The upper limit of a Micro SaaS valuation is ultimately determined by the maximum loan a buyer can secure based on the company's income. Here's a simple calculator to illustrate this concept, helping us all determine valuation more accurately based on the real world 👇 #microsaas #acquisitionentrepreneur #saasgrowth

Case Study: How We Helped a Growing Saas Company Avoid a Lender Trap They needed stock loans and had a seemingly unbeatable offer...until the margins and fees kicked in. We stepped in and negotiated fair, flexible terms that saved them thousands. Want the details? Comment below. #CaseStudy #StockLoans #SaaS #BusinessGrowth

Finding the RIGHT profitable business to buy involves more than just affordability; it requires a systematic approach to ensure it's a solid investment. Stage 1: Financial Assessment ↠ Gather Financials: Obtain 3 to 5 years of financial statements. If the Profit & Loss (P&L) statement isn't clean, consider hiring a bookkeeper. Tax returns can provide a clearer picture, which you can reformat into side-by-side P&Ls for a high-level overview. ↠ Evaluate Key Metrics: Check revenue, COGS, gross margins, expenses, net profits, and margins. Calculate EBITDA and add back reasonable items for Seller’s Discretionary Earnings (SDE). A rough SDE figure combines EBITDA and the seller's salary (disregard distributions). ↠ Initial Filter: If the financials don’t meet your criteria, move on. Experience speeds up this assessment over time. Stage 2: Industry and Market Analysis ↠ Positive Indicators: Look for stable or rising sales, gross margins, and SDE/NOI/EBITDA. Ensure the business is in a favorable market/location. ↠ Red Flags: Watch out for issues like a net operating loss (NOL), high debt/equity ratios, environmental concerns (e.g., toxic chemicals), or franchise restrictions. Stage 3: Price Evaluation ↠ SDE Multiples: For small businesses, pricing typically uses SDE multiples. These can range widely, depending on factors like management structure, absentee ownership, and industry norms. ↠ Real Estate Considerations: If real estate is involved, assess Cap Rate versus Loan Rate plus 1%, cash flow after debt service, and Debt Coverage Ratio (DSCR). Negotiate the price if necessary, and maintain contact with the seller if it's a no (for now). Stage 4: Deal Terms and Structure ↠ Negotiate Terms: Terms can significantly impact cash flow and risk. Consider contingencies for operators, licenses, contracts, and exclusivity. ↠ Look for favorable terms such as seller carry (10% or more), low interest rates, and non-personal guarantees. Check if the lease is transferable and if working capital or accounts receivable are included. ↠ Avoid Pitfalls: Be cautious of negative capitalization and unfavorable debt terms. Good terms reduce the cost and financial risk of the acquisition. If a deal passes all these stages, move forward to get it under contract. The RIGHT deal is defined not just by price, but by favorable terms and a solid financial foundation. Want the visual guide? Download it here: https://buff.ly/3zWBQ44

I’m buying a CPA firm that delivers a 5.3x return on cash and I'm not a CPA. Here’s how we made it happen. Purchase price: $880,000   Revenue: $950,000   EBITDA: $344,000   Equity to close: $44,000 For this smaller deal, we're using the SBA —but here’s the hack. Most SBA loans require 10% down, but I got around this to only bring 5%. The SBA allows for a lower down payment (2.5-5%) if the seller carries part of the note with deferred interest for 2 years. ✅ Executed: The seller, Laura, is carrying $280K over 5 years at 5% interest, with payments deferred for 2 years (interest accrues).  So, I’m only putting down $44K (5% of $880K). Let’s do the math. Monthly Net Income: $29,000   Total Debt Payment:   - Senior Loan: $8,265   - Seller Carry: $1,166   = $9,431/month Net Monthly Income: $19,561   Annualized: $234,732 A $44K investment** → $234K return = 5.3x return in year one. 💥 But that’s just the start. Here’s where the upside lies.    I’m not a CPA, but I have a CPA operator running day-to-day, and we’re implementing: - AI-driven bookkeeping (offshore services not currently used) - Fractional CFO services to support growth   - Quality of Earnings reporting to fuel future M&A   - Transitioning everything to cloud-based software These aren’t flashy businesses—but that’s exactly why they win. #acquisitions #smb #cashflow

Highlights from the latest BizBuySell Insight Report on the state of the small business market: 1. Market Overview Increased Deal Activity: 2024 saw a 5% rise in small business acquisitions, totaling 9,546 closed deals, with a combined enterprise value of $7.5 billion—a 15% increase year-over-year. Higher Valuations: Buyers are paying more, indicating confidence in the market, while deal volume grew steadily, especially in the first three quarters. 2. The Impact of Interest Rates The Fed cut rates three times, but only 17% of buyers expedited their purchases due to these reductions. Lending remains tight, meaning buyers still face challenges in securing financing. 3. Industry-Specific Trends Manufacturing: Strong growth, with a 15% increase in acquisitions. Median sale price hit $700K, and cash flow multiples climbed by nearly 10%. Technology & Online Businesses: Boomed with a 74% increase in deals, though revenue and cash flow were down slightly. Median sale price: $650K. Construction: Continued steady growth, with acquisitions up 10% and a median sale price of $760K. 4. Inflation and Financial Performance Inflation eased slightly, but 78% of business owners reported increased costs (e.g., payroll, energy, insurance). Despite this, valuations remained resilient, reflecting strong buyer demand. Financials across sold businesses were flat year-over-year, with no major decline in cash flow or revenue. 5. Looking Ahead Opportunity in 2025: With election-related uncertainty resolved, buyers are ready to act. Economic conditions remain favorable for both buyers and sellers who are well-prepared.

Are You Fiscally Ready for OASIS+? I was curious about the dollar threshold for contracts awarded to small businesses under the OASIS vehicle. I did the research using GovTribe. Here’s what I found: ·        314 small business task orders with a potential value under $500K ·        618 small business task orders between $500K - $2M ·        1.2K~ small business task orders between $2M - $10M ·        397 small business task orders between $10M - $25M ·        441 small business task orders greater than $25M ·        102 small business task orders greater than $100M The opportunities are there. The question is, if you’re fighting above your weight class, do you have a financial infrastructure in place to succeed for that dollar threshold --- or to win multiple contracts simultaneously? Aligning various lines of credit is instrumental. You don't want poor contract management to be a source of ruination to your brand because you didn’t have the resources in place to cover the initial set-up costs for successful execution. If it’s your intent to shape a large opportunity towards a small business domain, prove that you’re ready to execute. Include a letter from your financial institution certifying a line of credit large enough to support the win. Your relationship with your traditional and non-traditional banker(s)/investor(s)/financial lender(s) is a key component to your success. If you are not lock-step with your financial backer today, your risk score increases. When your risk score increases, your PWin decreases, etc. etc. etc. This is the time to become fiscally ready for success on #OASIS+   Mild Red LLC has a 90-day service offering for vendors new to the #OASIS ecosystem. We also have a bundled opportunity with ArtForm Business Solutions to help you highlight your strengths and how to stand out from the crowd. Reach out to Katie Helwig or Janet Waring for more information.

Business Brokers: When calculating Seller's Discretionary Earnings (SDE), we often see depreciation added back. After all, depreciation is a non-cash expense, right? But let's take a step back. Depreciation isn't just an accounting term—it's also a reminder that some equipment or assets are slowly reaching the end of their useful life. Think of a delivery vehicle or a kitchen appliance. Over time, these items will need replacing, and depreciation is simply the way of recognizing that fact. So, while depreciation can be an add back, it's not always straightforward. Sometimes it signals future investment needs that will impact cash flow. Common sense should prevail in evaluating whether depreciation should be an add back in SDE. In other words: it depends. Context matters, and a nuanced approach can make all the difference in understanding the real value of a business. What are your thoughts? How do you handle depreciation in SDE calculations?

EBITDA is a financial metric that helps both buyers and sellers of small businesses determine valuation, negotiate deals, and understand a company's operational performance. In essence, it measures a business's profitability. When calculated during a business sale, it provides potential buyers and sellers with a clearer view of earnings by excluding capital expenditures and non-operational costs. https://bit.ly/4fX53f9

Bank overdrafts are great. When a business can get one. The problem is, many businesses can’t get one big enough, or at all. When they can, security can be excessive. If you’re a business owner and this sounds familiar, GMS Capital and its partners may have the solution: A Revolving Credit Facility up to £5m secured only by receivables. All the flexibility of an overdraft. All the leverage of invoice finance. No long contract, no changing bank details, no PG or floating charge. Completely confidential. Lending criteria is trading for a minimum of 3 years. A minimum turnover of one million and a minimum debtor book of 300k Compatible with all major cloud accounting packages including Xero ,Sage, QuickBooks, Zoho and more. Also, a minimum £1000 paid for successful introductions Graham Shaw GMS Capital Group 07507 645381 [email protected] www.gmscapitalgroup.co.uk image001.jpg

When I approach any trading comps, the valuation multiples that comes to mind is the favourite EV (Enterprise value)/ Revenue, EV/EBITDA (pre-tax profit) and the P/E multiple. They do have their own peculiarities but the EV/Revenue multiple seems like a major concern for me and the overvaluation that could be a result indicating a high performance. Should a company with a high revenue but with low profit be overvalued just because the high revenue? While it may imply growth, it doesn't mean that companies is profitable. So it is safe to say we might agree to disagree on the relationship rather than the component of the multiple. Why EV/Revenue(sale) multiple? The EV/Revenue multiple is a ratio that indicates how much an investor is willing to pay for each dollar of a company's revenue. The ratio better suggests that a company with good sales can improve its valuation if we're to go by the multiple. The only reason it is of prefernece is that the multiple don't take into account the capital structure of every firm and is a go-to multiple when gauging every firms' performance on the same level. What's their relationship? Revenue might directly affect any company's Enterprise value but most times it does seem to be indirect for the following reasons: ✅️ A company with a strong revenue growth might as well have a higher Enterprise value. Increased sale indicates healthy performance which makes Investors enticed. It results to higher stock price which impacts the market capitalization and the latter is an essential aspect of a company's Enterprise value. ✅️ Improved revenue impacts profitability. Higher revenue growth can lead to high profit which can support higher valuation. When a company's revenue increases, the profit can also be increased which justify a high EV/Revenue valuation multiple. ✅️ An increased revenue even improves a company's possibility to get more leverage. Lenders will be willing to give more debt to firms with good sales not only to improve revenue but with the assurance that the companies have the capacity to take on such leverage and then it improves the companies Enterprise value since it consists of market capitalization in addition to Debt and subtract cash. So, while it appears that revenue growth has an indirect relationship with Enterprise value, it important to take into consideration other valuation multiple on profitability in your next Comparative Company analysis. Because market perception, profitability, high debt profile can even significantly impact the Enterprise valuation of a company. #Finance #Valuation #corporatefinance #Excel