You heard Joe Schmidt got an 8x multiple? Wow! I don’t blame you for holding out for 8. Your company is so much better than Joe’s. In fact, here are the normalized income statement and balance sheet for both your company and Joe’s. Of course, “normalized” means the assets and liabilities of the balance sheet are listed at their actual current fair market values rather than book, and the income statement is adjusted for things such as owner compensation that deviate from “fair market.” So, we are comparing apples to apples.
Buyers look at many things to project what the future might hold for a business. One is past performance. To that end, historical income statements provide information about income, expense and resulting profit for past periods. Given, however, the buyer is interested in the future rather than the past, the buyer seeks to understand historical income and expense only as a means for predicting the future. As such, some income and expense entries will need to be removed or modified. That is, ones that cannot be expected in the future.