Multiple Discretionary Income Formula

The multiple discretionary income formula is a formula used to value a small business worth less than $2,000,000. It takes the discretionary income on average for the past three years and multiplies it by a risk factor from zero to three based on 10 differently weighted risk elements.

EBITDA

EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. The value is generally known as operational profit before capital expenditures and tax obligations.

Fair Market Value

Fair Market Value

Value at the individual level is strictly personal.  But as more buyers for the same item come into play the price of the item begins to stabilize. If there are hundreds of thousands of buyers, the price reaches a high level of consistency or what is called ‘Fair Market Value’.

Stability of Historical Earnings

Stability of Historical Earnings

No other element of the Multiply Discretionary Income Formula has as much weighted value as the historical earnings of the company. Every knowledgeable business entrepreneur, accountant, lawyer, broker, you name them; they look for this information first. There’s a reason for this.

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