A definitive valuation output for @SeanEcom's friend using @MehtabKarta criteria = $12M...
Here is how the calculation breaks down:
Business profile
Revenue: $13M
EBITDA: $3M (≈23% margin)
Growth rate: 15% per year x.com/SeanEcom/statu…
Let's assume a median Cash conversion cycle: 90 days (≈¼ year)
Step 1 — Start from the Buyer’s IRR Target
Private equity and independent buyers of small private companies generally target:
Gross IRR: ~30%
Net IRR (after fees/carry): 24–26%
This means they work backwards from:
“What price allows me to earn 30% annualized returns, assuming I get this business’s cash flows and can sell it later at a reasonable multiple?”
Step 2 — Forecast the Business’s Future Cash Flow
Assume EBITDA ≈ Free Cash Flow to Equity (FCFE) before working capital effects. But with a 90-day cash conversion cycle, roughly ¼ of annual revenue is tied up in working capital.
That means about $3.25M of capital is required to fund operations (13M ÷ 4).
If the buyer invests equity = purchase price + working capital, then the return calculation includes both. So the slower the cash cycle, the lower the IRR for the same purchase price.
(This is the part people don't understand about my tweet about the agency business model) x.com/TaylorHoliday/…
3. Step 3 — Estimate Value Based on IRR
We’ll do a simple 5-year DCF backward from a 30% IRR target.
Hesitant to spend $10k/month to hire someone for incrementality testing?
Here is a first principles framework for understanding incremental impact, based on seeing lots and lots of test results.
I'll explain...
There are 2 KEY FACTORS to identify when thinking about incrementality.
On the X Axis we have your optimization setting.
On the Y Axis you have your targeting exclusions.
Optimization settings run the spectrum from highest standard of obligation (1 day click) to broadest standard of obligation (Google's 30/3/1 or old display standards of 28 day click / 28 day view).
Creating a moment where your business can produce increased efficiency AND volume requires thoughtful planning and execution across your entire organization.
I am going to walk you through an example using our client APL...
This is the most powerful woman in consumer product that no one talks about.
Here is why she might hold the key to getting capital back flowing into our industry...
This is Lizanne Kindler the CEO of the Knitwell Group.
KnitWell Group's portfolio of brands generates around $6 billion in annual sales, making it one of the largest specialty apparel companies in the United States.
They are closing in on Tapestry, Ralph Lauren and Levi's
Many of us know Ann Taylor & LOFT from their brand name-recognition and enormous retail presence.
Less-known is Kindler’s role in Ann Taylor & LOFT’s comeback story.
From bankruptcy to a thriving portfolio, the journey is remarkable.