It is important to remember that business valuation can't be separated from the terms of the offer, so it is not always the highest offer price that truly represents the best deal. Keeping that in mind, according to a 2015 report from the Pepperdine Private Capital Markets Project, private equity firms reported a range of valuations for small manufacturing firms between 4x and 8x EBITDA (earnings before interest, taxes, depreciation, and amortization) depending on the size of the company. For example, the survey suggests that a company that may be somewhat comparable to yours with $1 million in EBITDA typically sold for around $4 million. However, in my experience the range of selling prices for small companies varies dramatically and the only real benchmark for a "fair" valuation is based on the range of offers that you actually receive when marketing your business for sale.

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This is not so much a valuation problem as a question of how to structure the transaction. Any adjustment you make to valuation to account for timing issues with working capital will just create a slightly different problem rather than solving anything. The best approach to volatile working capital is to include a working capital adjustment to purchase price in the terms of the transaction. That way, you can determine a reasonable working capital level for the business and agree to an adjustment mechanism for either the buyer or seller to get compensated for insufficient or excess working capital at the time of the transaction.

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LLC is a type of legal entity (like a Corporation) while S-Corp is a tax classification (like C-Corp, partnership, etc). You can elect to have an LLC taxed as an S-Corp, C-Corp, partnership, and so on. Legal entity choice such as LLC vs Corporation impacts the administrative requirements (filings, meetings, etc) and ownership/management structure (Corporations have shareholders, directors, officers but LLCs have members and can optionally appoint officers). Tax classification impacts whether or not tax obligations are passed through to owners as in partnership or sole proprietor taxation vs tax obligations belonging to the legal entity itself with additional tax obligations for owners as in C-Corp and S-Corp taxation. See the link for a more detailed explanation of considerations when organizing a legal entity and choosing a tax classification. There are a variety of reasons that some large businesses are organized as LLCs. One of the most common reasons is simply to set up a subsidiary entity that is simple to administer and disregarded for tax purposes (because the tax obligations are passed through to the owner entity) - this is the case for Chrysler, now FCA US LLC, which is the US subsidiary of Fiat Chrysler Automobiles, NV .

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Return on invested capital (ROIC) is a measure of the profit (returns) generated by a business as a percentage of the amount that has been invested in the business (capital) - typically over the course of a year but can be measured over any period. ROIC is particularly useful when compared to a companies weighted average cost of capital (WACC). If ROIC is greater than WACC, then the business is generating profits that exceed their costs of obtaining the funds necessary to operate. If ROIC is lower than WACC, then the business is essentially paying more to obtain financing than they are able to generate in profits after investing those funds. The basic formula for ROIC is relatively straightforward: Net Income (less dividends or distributions) / Total Capital = ROIC In practice, calculating ROIC can get a bit complicated because it is often necessary to make adjustments to both the net income and total capital figures in order to generate a useful ROIC metric. Typical adjustments to net income include eliminating non-operating income and expenses with related tax adjustments in order to arrive at a net operating profit after tax figure (NOPAT). Some organizations also choose to eliminate other one-time or unusual items that are included in operating income. Total capital is calculated by adding debt and equity less cash on hand. Typical adjustments to capital include adding off-balance sheet debts and eliminating assets held for disposal (that are generating non-operating income or losses).

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Within the technology and business services sectors where we interact with a large number of small to mid-sized private companies, we are increasingly finding more formal and active boards with committee structures for compensation, audit, etc. That said, the authority of these boards is still very closely aligned to the ownership situation. For example, family-owned businesses are still concentrating the voting rights among a few family members and utilizing independent directors primarily in an advisory capacity - often with a functional area focus - while financial sponsor backed businesses have the most formal board structures that track closely to their public counterparts.

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Typically business brokers assist sellers and sometimes buyers of very small, private businesses - often as independent agents or as a part of a business broker network (similar to a real estate agency). They may or may not be licensed depending on the state where they operate (for example, some states require business brokers to be licensed real estate agents and some require additional certifications). Their services are very similar to a real estate agent in that they help determine a valuation (or offering price) for the business, market the business for sale through various listing services and other media, manage communication and negotiation with potential buyers (and sometimes sellers) through the conclusion of the transaction. Investment bankers are employed by financial institutions in the business of raising capital for businesses. Advisory services related to mergers and acquisitions that may seem somewhat similar to the role business brokers play with small businesses are just one aspect of the work of a typical investment banker. In addition, the acquisition advisory services provided by investment bankers are much broader in scope and typically provided to larger businesses that require more sophisticated advice regarding potentially complex transaction structures. Investment bankers facilitate the issuance of public securities and raise private capital in addition to providing transaction advisory services. Investment bankers may be required to hold an MBA and a CFA designation in addition to other certifications depending on the requirements of the financial institution that employs them.

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There are a number of ways to structure earn outs as part of the purchase of a small company. Typically earn outs are used either to bridge a valuation gap between a buyer and a seller or as an incentive for an seller that also manages the firm to continue in their management capacity for a certain period after the sale (and often for both of these purposes). In most cases earn out payments are based on the target company's actual financial performance as compared to their projected performance at the time of the sale. For example, an earn out may be paid 3 years after the purchase of the company contingent upon the company achieving its revenue and/or EBITDA projections during that period (and it may require that the seller remain employed by the company until the time of payment). There are many variations on the time horizon over which an earn out is measured, the various financial and other metrics they may be used to determine how much earn out is paid, and the associated employment requirements. Feel free to post additional specific questions on any of the more detailed earn out topics.

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Non-profits can acquire other non-profits in a couple of different ways. Asset purchase: Non-profits can acquire all the assets of another non-profit organization and absorb their operations into the surviving non-profit legal entity. The acquiring non-profit could choose to continue operating the acquired non-profit just as it was operating prior to the acquisition (including transferring all employees to the acquiring non-profit) or they could choose to restructure the organization. Agreement to merge: Depending on its legal entity and tax status, a non-profit may agree to be controlled or completely merged into another non-profit. This is not really an acquisition in the traditional sense as it would not involve a purchase as their are no shareholders or owners of the non-profit to compensate in the transaction. Instead, this would require both non-profit boards to agree that their non-profit missions would benefit from such a combination. In this case, the combined non-profits could choose to operate at arm's length and even maintain separate legal entities (with one controlling the other) just as they were operating prior to the combination, or they could choose to merge both legally and operationally which could involve some organizational and board restructuring.

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Many startups complete Series A funding rounds without engaging investment bankers (typically advisors are used when much larger amounts of capital are involved). That said, there are boutique advisory firms that take on smaller capital raises as would normally be the case with a Series A round. Fees for smaller capital raises usually range from 5% - 10% of the capital raise (see the source link below for lots of detail on the formulas traditionally used by bankers to set fees based on different sizes of deals). Some firms may require a retainer fee that is usually deducted from the success fee once the capital raise is completed. https://www.axial.net/forum/investment-banking-fee-structures/

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