How to value a CNC machining company for sale

Start with the earnings, not the revenue

Every valuation conversation an owner has with a buyer starts in the same place, and it is not where the owner expects. Revenue sets the size of the company. Adjusted EBITDA sets its price.

Adjusted EBITDA begins with reported profit before interest, tax, depreciation, and amortization, and then adds back costs a new owner would not carry. The common ones in a machining company are an owner salary above or below what a hired general manager would cost, personal vehicles and travel run through the company, family members on payroll who do not work in the business, one-time legal or equipment costs, and rent paid to the owner's own property company at something other than market rate.

Each of those is defensible when documented and indefensible when asserted. A quality-of-earnings provider will test them one at a time, and the ones without a payroll record, an invoice, or a lease behind them come back out. That is why bookkeeping quality changes the price before a negotiation begins.

What sets the multiple

The multiple is a risk judgment about the things a buyer cannot change in their first year.

• Customer concentration. Above roughly 25 percent in one account it draws attention. Above 40 percent it changes the structure, pushing price into an earnout or a seller note.
• Owner dependence. If the owner quotes, schedules, holds the top relationships, and is the person the floor calls, the buyer is purchasing a job rather than a business.
• Verifiability. Statements that reconcile to tax returns support the headline number. Statements that do not get repriced mid-process.
• Certification. ISO 9001 or AS9100 registration acts as a filter more than a premium: some buyers simply will not look without it.
• Equipment. Not age alone, but capability, utilization, and what the next five years will require.

The part owners miss

Nearly every offer at this size is made cash-free and debt-free with a normal level of working capital delivered at closing. The buyer sets a target from a trailing twelve-month average, and at closing the actual receivables, inventory, and payables are measured against it, with the price adjusting dollar for dollar.

Sellers who have been running lean on inventory or pushing hard on collections can find the final wire smaller than the headline number they agreed to. This is standard practice rather than a trick, but it is the mechanic that surprises first-time sellers most often. Negotiate the definition and the reference period in the letter of intent, not in the purchase agreement.

What to do with this

Three numbers tell an owner where they stand: adjusted EBITDA with documented add-backs, revenue and gross margin by customer for three years, and a current equipment list with maintenance history. Any advisor worth talking to will ask for those three before giving a range, and an owner who has them in hand gets a defensible answer in days rather than months.