If you’re considering selling your business, you may be asking, “How much is my business worth?” It’s important to get a business valuation so you’ll know how to get the best possible price.
Although there’s no perfect method to use for figuring out this number, there are methods you can use to determine the value of your company, including a business value calculator.
For a more in-depth analysis of the value of your business, consider working with a professional business broker. Selling a business can be an overwhelming experience, so having the right guidance throughout the process is key.
Here’s a guide to assessing the value of your business.
How Much Is My Business Worth?
Whether you’re selling your business, selling an equity stake, or bringing on a partner, it’s important to have a baseline business valuation. The valuation of your business is important if you plan to get a loan.
If you need a loan to expand your business, lenders will look at your assets and cash flow to evaluate your ability to pay back a loan. Both factor into how your business is valued.
Banks often want to do a valuation on your business before approving a loan. If something unexpected happens and you suddenly can’t run your company, it’s critical to know its value.
Knowledge is power. Knowing the value of your business is one way to protect your family and your assets.
If you or your family needs to sell your business, it’s critical to have an accurate valuation before initiating the selling process.
Your Business Assets
One way to value your business is similar to how you calculate your net worth. This involves assets minus liabilities.
For example, if your business has $2 million in assets and $500,000 in liabilities, its value would be $1.5 million.
Your assets include anything that has value and can be converted to cash. This includes property, technology, equipment, etc. Anything unique to your company has value.
Liabilities include all of your business debts. An asset-based approach to valuation may be a good option when other methods determine a lower value for your company.
This approach fails to consider intangible things like your brand or your reputation. Both of these could entice buyers to pay more for your business than its basic valuation.
Your Cash Flow
This method considers your potential future cash flow for determining valuation. Potential buyers and investors often ask for information regarding current and projected future profits.
Investors use this information to determine what a business might sell for down the road minus the risk of the investment. Discount flow analysis involves using estimates and projections to make an educated guess.
If the projection is off, it could lead to potentially undervaluing or overvaluing your business. This only complicates matters and lengthens the selling process.
Your Earnings or Revenue
Looking at your business revenue is another valuation tool. Similar to an asset-based approach, this method is a simple but rough method of determining your company’s worth.
You multiply your company’s revenue by a number standard to your industry to determine value. For example, if the standard for your industry is “three times sales” and your earnings were $1 million, the revenue-based value equals $3 million.
Multiplying your company’s earnings or calculating how much your business makes after subtracting costs is another method for valuation. This method includes making projections regarding future earnings and using a multiple to determine valuation.
Every business has its competitors, and your business is no exception. Looking at the selling price of similar businesses with similar customer bases and earnings can help you get a ballpark estimate of your company’s valuation.
Along with comparing selling prices, you can look for public information regarding the valuation of comparable companies. This can be challenging if you’re comparing small businesses or private companies.
It can be hard to find an exact comparison to use for valuation. Using another valuation method may be more beneficial.
It’s always a good idea to leave the valuation of your business to the experts. An experienced real estate or business broker can help you accurately value your business and determine the next best steps.
This can save you a lot of headaches and unnecessary back-and-forth negotiations with potential buyers.
Calculate How Much My Business Is Worth
If you’re interested in a simple and quick method for valuation, you may want to try a business valuation calculator. It’s a fast way to get a ballpark estimate of your company’s value.
A business valuation calculator is a helpful tool, but it can’t factor in all the tangible and intangible assets that make your business unique. These factors can influence the actual value of your business.
Pros of a Business Valuation Calculator
If you’re just wanting a quick estimate of your company’s value, a business worth calculator is a handy tool. Some of the pros include:
- A quick and simple tool for a ballpark business value
- Includes an average industry multiple for comparisons
- Focuses on actual earnings and profit margins
Most valuation calculators are based on a company’s bottom line. This is the amount of money your business generates notwithstanding your assets and liabilities.
Cons of a Business Valuation Calculator
There are always tangible and intangible aspects of a business that a digital tool cannot take into account. Some of the cons of using a valuation calculator include:
- Excludes assets that can affect a significant portion of some businesses
- Not based on market trends that can affect valuation
- Absence of expert analysis
Think Beyond Financial Formulas
There’s more to your business than the money you earn. You can’t base the full value of any business on numbers alone.
Consider the geographical location of your business, its relevance in the community, and the potential strategic value for a would-be buyer. Think of what’s unique about your brand and how it contributes to the overall value of the company.
Prepare to Sell Your Business
Selling your business isn’t a decision you should take lightly. Like most business owners, you’ve probably poured your heart, soul, and money into making it a success.
Before you sell, consider your reasons and if it’s in the best interest of you, your family, and your financial well-being. If you want to sell, you should start planning to sell long before you actually do.
Make sure your books are in order and there aren’t any reporting mistakes or accounting errors. Minor issues can affect the sale process and your ability to maximize your company’s value.
The fewer problems you face while your business is analyzed, the easier it is to close the deal. Make sure you have the necessary basic documentation you need, including:
- At least two years of tax returns
- Current balance sheet
- Current profit and loss statement
Guard Your Emotions
Your business may feel like part of your family. Leaving it behind isn’t always easy. It’s not uncommon for people to back out of selling their business for emotional reasons.
When you’ve given something so much of your time and effort, you may have trouble looking at its true worth. Unfortunately, the market doesn’t consider your memories or feelings.
The value of your business depends on the current economy, your particular industry, and your performance. Try to step back and put yourself in the buyer’s shoes.
Remember, the ultimate goal is to sell your business and walk away feeling good about what’s to come. Take as much emotion out of the equation as possible and aim for a smooth sales process and fair price.
Hire a Business Broker
There’s so much to consider when selling a business. It can be overwhelming to try to handle it on your own.
A broker can help you manage your expectations and can guide you throughout the selling process. A knowledgeable broker will work to maximize the selling price to get you what you deserve for your business.
A business broker helps sellers get much larger amounts for their businesses than they could get on their own. You won’t have to worry about contacting potential buyers, marketing your business, handling administrative tasks, or negotiating price points or contracts.
During a consultation with a broker, you may have many questions. Some things you may want to ask include:
- What is the value of my business?
- How will you determine its value?
- How long will the sales process take?
- What can I expect?
- What is my role in the process?
- What are the next steps?
Choosing the Right Broker for Your Business
Selling a business can be a complicated and tedious process. It’s one that you probably don’t want to try on your own.
Whether you’re considering selling your business now or in the future, an accurate valuation is essential.
Are you wondering, “How much is my business worth?” If so, be sure to do your research and hire an experienced broker for the job.
At Gulfstream Mergers & Acquisitions, our banking and business sales specialists have a reputation for industry excellence and impressive results. We would love to assist you with your business needs.
Contact Gulfstream Mergers & Acquisitions today to schedule a consultation.