The Rule of 45
Shoot the Moon with Revenue Rocket
English - June 08, 2020 18:55 - 4 minutes - 4.56 MB - ★★★★★ - 6 ratingsManagement Business Entrepreneurship business growth selling your business m&a process growth strategy it services m&a managed service providers cybersecurity cloud services custom application Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
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Why the Rule of 45 is a critical step in identifying a defendable valuation for acquisition targets:
Understanding inflated growth riskDetermining the risk through calculation. We look at two metrics to identify the combined value. First, is the Year over Year growth rate as a percentage and the second is EBITDA %. To calculate the growth percentage look at the gross revenue of a business over a couple year period. Subtract the previous year revenue from the following year revenue. Multiply that number by 100 and divide again by the second year revenue. Example: $3,200,000 (year 1) & $4,100,000 (year 2) 4,100,000 - 3,200,000 = 900,000 100 4,100,000 = 21.95%How to further evaluate targets with combined “Rule of 45” scores exceeding 45. Working with M&A advisors like Revenue Rocket helps identify valuation risks and other potentially costly errors that can come from improperly sizing up acquisition targets.Listen to Shoot the Moon on Apple Podcasts or Spotify.
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