If you’re considering selling your business or you’re considering a buyback offer from your partners, determining the value of your business is a crucial task. The most common method estimates your company’s worth by calculating the amount of income it’s anticipated to earn over time.
Another approach is to add up all your assets (such as equipment, real estate and others) and subtract your liabilities (such as outstanding loans and debts). This method is beneficial for investors who want to know the value of your business.
You can also assess the value of your company by analyzing earnings or revenue. A standard guideline is to use a multiplier of the company’s annual EBITDA (earnings before interest tax, taxes, depreciation and amortization) which can vary from two to six times revenue for smaller to mid-sized enterprises. It is important to keep in mind, however, that multiples vary based on the industry and specific attributes of your company.
While general guidelines can be helpful but they don’t give the comprehensive view needed to assess the value of your business to sell. That’s why many experts recommend hiring valuation experts who know the intricacies of business valuation and can assist you in weighing your options. They can consider the past profits stability as well as liabilities and assets and growth runway in order to give you a precise estimate. They can also offer advice on adjusting your operations or financial structure to improve valuations. To find the best expert to work with consult your accountant, business advisor or a professional business broker.