Knowing what your business is worth will assist you in deciding whether to spend on a piece of equipment, to recruit a partner or seek out the investment dollars. It can also serve as an idea of your company’s financial performance and let you compare it to other businesses in the same industry.
To assess the value of a company to determine its worth, add all the assets like inventory and property, and subtract any liabilities or debts. This could be a good starting point but remember that your company is more than its assets and liabilities.
You can use the market method for a more accurate estimate. This method is based upon recent sales of similar businesses. This method employs what’s known as seller’s discretionary income, or SDE, which is like EBITDA however, it includes in things that aren’t necessary for business operations, like employee outings charity donations, one-time purchases.
Another option is to base the assessment on revenue, using a multiple of annual sales. The number of times you multiply will depend on the industry trends, your company’s size and. A knowledgeable business advisor or broker can provide you with guidance on the most appropriate method for your specific company. It’s important that you update your calculation on a regular basis and seek out an appraiser who is a professional to get the most precise assessment of your company’s worth. They can also aid you in planning for a possible acquisition or sale of your business.
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