Pricing Strategy? SDE based- B2B service.

February 02, 2023

by a searcher from Clemson University in Naples, FL, USA

I'm looking at a B2B service business that could see reasonable growth in the next several years.

However, I'm not aligned with the broker/seller on price.

My offer takes into account the debt I'd take on and looks back three years.

With my offer I'd be able to cover the debt for the last three years (above DSCR of 1.5 for 2022 & 2021, above DSCR of 1 for 2020).

The ask price and associated debt would allow me to meet DSCR of 1.5 for###-###-#### Below 1.5 DSCR for 2021, below 1 DSCR for 2020.

I set up my model with 10% equity, 10% seller note, 80% SBA.

1- What are some common pricing strategies based on SDE?

2- For successful closings how far did you look back to establish pricing strategy?

For reference the SDE in 2022 was about $700,000.

Reply by a lender
from Indiana University of Pennsylvania in Pittsburgh, PA, USA

I'd agree with Chuck above in that sticking to your process is key & negotiating on options that protects cash flow/dscr. From a bank a bank perspective we'll typically put more weight on most recent years but will try to review if the most recent years are most predictive of future success or likelihood of a regression.

Eventual business valuation will also take into account what years are most predictive of your year 1 & try to uncover any trends or items seller has changed to provide more recent dscr improvements. Please let me know if you would like to discuss redacted

Reply by a searcher
from Salisbury University in Virginia Beach, VA, USA

^redacted‌ I find that every (99.9%) of the deals listed with brokers are over priced. Generally, if they're stuck at a higher multiple and won't negotiate on price then they need to negotiate on terms. Stick to your process and only go up if the seller is willing to take on a larger note with longer terms to bring down the debt service payments. Some sellers just want to brag about how much they sold their business for and don't care about how much they receive at closing.

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