In the M & A lexicon, EBITDA is often used to help value businesses.  A simple definition, familiar to most in the field, describes EBITDA as Earnings before Interest, Taxes, Depreciation and Amortization. Remember, Multiples, in the Staffing Industry are most often applied to EBITDA.

Often, EBITDA is adjusted to normalize the number for a neutral buyer, who will not take any perks that most entrepreneurs take that may not be totally necessary to sustain or enhance the business’s profitability. When you own your own business you can take these expense liberties, as long as you are aware that the IRS might not accept them.

However, a seller cannot add back everything they spend.  For example, the owner’s salary and benefits cannot be totally added back if the owner has some responsibilities in the operation of the company.  The buyer will require some salary/benefit replacement cost to hire an employee for the work previously performed by the owner.  If the owner wants to stay after the sale then his or her salary will be reduced to match that of the employee that would have been hired to perform this function.

As an example, assume the owner’s compensation package is $500,000 annually while the replacement package cost is believed by the seller and his/her Advisor to be $150,000 per annum.

One specific Buyer may accept this figure and allow an add back of $350,000, while another Buyer may believe the replacement cost is closer to $200,000 and a third buyer could argue that they feel they would need to pay $250,000 to hire a similarly qualified replacement manager in your market. So there is no exact equation and the process is subject to each individual buyer’s approach and policy.

To determine the EBITDA of your business:

Start With: Earnings before Taxes for the most recent trailing twelve month period.

Exclude: Interest Expense, Financing Cost, Depreciation, Amortization, Donations that aren’t necessary to promote the business, Interest Income, Gains or Losses on Asset Sales.

Remove: Unusual or extraordinary Professional Fees (i.e., Acquisition, Divestures, One Time, or Personal).

Normalize: Ownership/Shareholder/Management Compensation to Market Value (Salaries, Wages, Bonuses, Perks, Travel, Entertainment, Automobile, Insurance, Management Fees, etc.).

Note – Not all changes bring EBITDA up, some may bring EBITDA down.  For instance, if the owner is not taking a salary but is performing daily operation duties than a replacement cost amount must be subtracted from the EBITDA to adequately reflect the lack of that expense.

Once an adjusted EBITDA is arrived at and it is determined the seller is reasonably profitable, the company will then be valued at a multiple of this adjusted EBITDA.

Some valuations include working capital (the difference between current assets less current liabilities) as part of their multiple particularly in professional staffing service sectors.

So, when discussing multiples it is vital to know what the buyer is or isn’t including in their multiple number to be sure you are making fair comparisons between buyers. Depending on the Buyer, sometimes a 4X will net you more than another buyers 5X. Multiples and acceptable adjustments are always buyer-specific.


The bottom line is that the multiple is just a number arrived at by taking into consideration at least ten separate operating characteristics which we publish each year.

There are other methods of determining the value for less profitable or newer staffing operations which are often expressed as a percentage of annual gross margin dollars generated. This approach is used when the business is new, the profits are relatively low or a significant overhaul of SG&A expenses would improve the profit.

The 2019 multiples we recently published are repeated below for your reference now that you know how to determine the adjusted EBITDA of your company.

Multiples of Adj. EBITDA Between $5M-$10M in sales Between $10M-$20M In sales Between $20M-$50M In sales Over $50M in sales
IT Staff Aug 3.25x-4.0x 3.75x-4.75x 4.25x-5.75x 5.5x-6.75x
Specialty Niche 3.5x-4.0x 3.75x-4.75x 4.25x-5.75x 5.25x-6.25x
Healthcare 3.75x-4.5x 4.0x-5.0x 4.5x-5.5x 4.75x-6.5x
Offices Services 3.1x-3.5x 3.25x-4x 3.75-4.25x 4.2x-5.25x
Light Industrial 2.9x-3.6x 3.25x-4.25x 4.25x-5.25x 4.5x-5.5x

Note: The chart above assumes the seller will retain their Balance sheet.

There are always exceptions to the chart above, often when the Gross Margins are much higher or much lower than sector and industry standards, is one example.  This is a guideline only and shouldn’t be relied on until a seasoned M&A professional advisor has reviewed your specific company characteristics.  We will provide this service at no cost, while some other advisors may charge, so it’s a good idea to check first.  You are much better served to work with a staffing industry M&A specialist rather than a generalist M&A advisor because the prior specialist will know and be more up to date on the staffing industry.