what is your business worth?
Our business valuation experts are ready to help you value your business and understand the worth of your most important asset. Read on to learn more about the importance of this knowledge, or if you are ready to get started, simply choose the appropriate size business to sign up for your FREE CONFIDENTIAL BUSINESS VALUATION
FAIR MARKET VALUE
Essentially, what a buyer would pay for your company in an open market.
Now, remember, this is a simplification of some very intricate valuation practices. There are valuation experts that specialize in providing very complicated reports as part of their business valuation services. Those reports are often used for IRS inquiries, legal proceedings, intricate financing and other reasons. A full valuation of a company could cost $10,000-$30,000. For small business sales, a valuation is usually not needed, and for the most part our simplified valuation methods are sufficient enough to determine your listing and approximate your eventual sale price.
Estimated Market Value
We are going to oversimplify this big time here, but let's take a look at the two major pieces of a small to mid-sized business. The actual earnings and the market multiplier
First: Establishing Earnings
For small businesses where the owner runs the day-to-day operations of the business and the net income of the business is less than $1 million, the number we are first looking come to understand is SDE (Sellers Discretionary Earnings) or Owners Benefit.
For mid-sized to larger companies, we are going to need to derive the company's EBITDA or Earnings Before Interest Taxes Depreciation and Amortization.
Simply put, this is how much money the owner is actually making from the business before tax and accounting maneuvers and tangible benefits received.
Second: Apply a Market Based Multiple
Once the reliable cash flow is derived, we now need to find a market multiplier to find the range of value. For example, most small to mid-sized businesses will have a multiple of 1.5 and 6 times. The multiple is based on comparables from the market and the reliability and predictability of the company's cash flows based on company performance and organization.
Now the Buyers Decide
Once you have an idea of the range of value and list your company for sale, ultimately the buyer will decide the value with actual valid offers. No one can tell you exactly what your company is worth, not even an appraiser. The true value at the end of the day is an actual sale price.
Don't get overwhelmed!
a quick summary of BUSINESS VALUE
Your business is worth the following:
A multiple of earnings compared to like businesses (seller's discretionary earnings, owners benefit, and rarely gross sales times an industry multiple).
A capitalization of the net profit (Not Owners Benefit...you cannot capitalize owners benefit!) 20% to 50% or a simple multiple of owner benefit.
If your business makes little or no money, Asset value will probably be the method used. (Goodwill + Inventory + Equipment +etc.) Either sold as a whole or liquidated over time. The value you would receive if you sold all of the business's assets and paid off the debts.
This is a very oversimplified explanation and when the time matters, it is recommended to consult an expert. You will only well your business once. You don't get a chance to learn from your mistake and do it better next time.
