The value of your business is essential, whether you’re planning to sell your business or thinking about a buyback with partners. The most common way to estimate the value of your company is based on its expected earnings over time.
Another method is to add all your assets (such as equipment, real estate and other equipment, and so on) and subtract your liabilities (such as outstanding loans and debts). This approach may be useful for companies or individuals who want to invest in your company, as it gives them an idea of the current value of your books.
You can also determine your company’s value based on its earnings or revenue. A standard practice is to multiply the company’s EBITDA (earnings prior to interest taxes, amortization, and Revolution Data Systems depreciation) by a range of two to six. This is an option for companies of a smaller or mid-sized size. The multiples will vary based on your industry and the specific features of your company.
While general rules of thumb are helpful but they don’t provide the complete picture needed to evaluate the worth of your business’s potential sale. A lot of experts recommend consulting valuation professionals, who can assist you in weighing the advantages and disadvantages of your options. They can take into consideration the past performance, stability, assets and liabilities, and growth runway in order to give an accurate estimate. They can also give you guidance on how you can improve your financial structure or operations to improve the value. To find the best expert for your needs consult your accountant, business advisor or a reputable business broker.