Pricing Strategy? SDE based- B2B service.

by a searcher from Clemson University

2 years ago

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.

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6 comments

searcher from Clemson University

^Searchfunder member‌, I’ll make sure to negotiate options to protect cash flow.

Many deals I’ve reviewed (except for one) seem to have inflated SDE in the most recent years. I’m guessing the owner was preparing for a sale. I’ll take unsustainable DSCR improvements into account for pricing.
Please look out for my email.

2 years ago | like reply | 0 likes

lender from Indiana University of Pennsylvania - Eberly College of Business and Information Technology

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 --@----.com

2 years ago | like reply | 0 likes

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