Professional services companies are highly valued for the services they provide, and their value is largely based on intangible factors such as customer relationships, staff experience, and reputation. Business valuation experts often use the revenue approach to determine the value of these companies, which typically have earnings multiples ranging from 6 to 8 times EBITDA or 11 to 14 times net income after taxes. Sales multiples usually range from 1.3 to 2.2 times revenue, depending on profitability. Profit margins for professional services companies are usually between 15 and 30% of revenues (EBITDA).
If you are looking to sell your professional services company in California, it is important to work with a certified commercial broker who specializes in valuing and selling these types of businesses. They will be able to guide you on the best approach to arrive at an accurate calculation of the multiples of benefits and revenues for your particular company. Additionally, developing a valuation of your professional services business is an essential part of preparing it for sale. The scalability and growth potential of people-based services is limited due to capacity constraints, which is why professional services companies are typically valued at moderate multiples.
However, with the right preparation and guidance, your service-based business can continue to grow with a new owner.