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Writer's pictureRC Advisory Services

A Story about "Ed"

Similar to the Farmers Insurance tag line, our firm 'Knows a Thing or Two Because We've Experienced a Thing or Two.'


This is a story about "Ed" who is a composite of some of the sellers that we have worked with. Ed owned a very profitable company with revenues of $3M. His CPA indicated that he had compiled earnings (EBITDA) of $1M and could expect a valuation of about $4,000,000 (4X).

Getting under the Covers to Find the Real Earnings.  Our first task was to 'peek between the sheets.' A few of the things that we discovered were:

  • There were only three folks in the office, but office expenses were well over $24,000 per year. We learned that these expenses were related to Ed's Costco Credit card (“you gotta eat you know”).

  • An expense for consulting was determined to be for Ed's mother who was in a nursing home ($10,000/yr) “She used to be our bookkeeper and knows a lot.”

  • A building maintenance expense for $3,000 per month related to the caretaker of the seller’s ranch "Somebody has to pay him.”

Ed Gets an Increase in Value and is a Happy Camper. The above adjustments resulted in $70,000 of increased earnings and an increase in value of $280,000 assuming a 4X multiple.

Ed was very happy with the 28% increase.

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