We have business valuation experts on staff to help you value your business. We can meet with you and discuss your business’ worth value or we can be engaged to perform valuation reports. To get an estimate of what your business is worth using our Free Online Calculator now.
How Much Is A Business Worth?
Valuation is the number one question of all of our sellers when contemplating a sale, and of course, the concern of most buyers when purchasing a company. Unfortunately, there is not an easy answer, and, more confusing, there are probably several answers. Why? Because business valuation is an art not a science. Valuations are subject to the appraiser’s judgment, skill and quality of methodology. There are several standards of value for businesses, i.e., different values.
Fair market value – The price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.
Intrinsic value – Stock values that investors would consider.
Fair value – Legal standards to value. Often used in divorce.
Investment value or strategic value – The value to specific buyers. Could exceed fair market value.
Multiple Of Your Past Earnings
Whew? What does all that mean? Simple. Your business is worth a multiple of your past earnings if a buyer can project those earnings will be maintained after the purchase.
What Is The Multiple?
Well first we must discuss what you want to multiply? Net income? EBITDA? Owner’s benefit? In small business sales (businesses earning less than 1 million dollars), we use owner’s benefit. Owner’s benefit equals the net income, plus depreciation, interest, and the owner’s salary and fringe benefits. In other words, all the income available to ONE owner if the company was debt free. EBITDA is used by larger businesses and includes normalized salary and benefit package for an executive to operate your business.
Okay, Now The Multiples.
Well the multiples of owner benefit can run from less than one to about three. If your company is larger and your EBITDA is near or above one million, the multiples can run from four to six. Is this set in stone? NO! How do you know which multiple would be used for your business? Well, the multiple will rise along with the size, quality, and verifiability of your owners benefit. Bad books, dim future, negative growth and little profits equal a low multiple. Excellent books, bright future, excellent growth you will garner a high multiple.
Can all that mean nothing? Yes!
Buyers determine a business’ eventual sale price. Not valuation experts. That is why no one can tell you exactly what your business is worth. Not your banker, CPA, lawyer, broker, or mother-in-law. The only individual that will tell you what it is worth is the eventual buyer – and that will be a subjective evaluation. The same business will be valued differently by every buyer.