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What Is My Business Worth?
Curious about the true value of your business? Our agents have
decades of experience with small business valuations.
decades of experience with small business valuations.
How To Determine
Your Business Valuation
How much you can get for your company is probably the first question that comes to mind when you think about selling.
Valuations are more art than science, and they are subject to a valuation professional’s judgment, skill and the methodology used. Before you start the selling process, find everything you need to know to know about going into a business valuation.
What Impacts Your Business Valuation?
Many things can affect the value of your company, including:
Size & location
Competition
Growth rates & industry trends
Quality of books
Ease of transfer
Timing
Terms of the sale
Approaches for Valuing Your Company
The three generally accepted approaches to valuing a company.
Asset Approach
Asset Approach
The asset approach determines the value of your business by summing up your assets and subtracting your liabilities. Note: This number may not properly represent the value of an ongoing business that has positive earnings.
Market Approach
Market Approach
A market approach is similar to looking at comparable sales in a real estate transaction. This approach uses databases available to compare multiples, gross sales and earnings and in most cases is the most reliable.
Income Approach
Income Approach
Most valuation methods attempt to project future growth rates in order to decide what the business is worth. The income approach demonstrates that your business is worth the present value of the income stream it will bring to an investor moving forward.
Valuations: The Fine Print
The only person who can determine a business’s eventual sale price is the buyer. But we can get as close as possible by considering what your business will be worth if your past earnings are maintained after the purchase.
01
What is a small business multiple?
EBITDA (earnings before interest, taxes, depreciation and amortization) is used by larger businesses to represent the profit generated by the company. In selling small businesses (businesses earning less than 1 million dollars), Transworld uses the 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 is debt-free.
02
Are high multiples good?
Yes! Owner's benefit multiples can range from less than one to about three. If your company is larger and your EBITDA is near or above one million, multiples can run from four to six. Multiples tend to rise with size, quality and verifiability of your owner's benefit. Bad books, a dim future, negative growth and little profits will result in a low multiple. Excellent books, a bright future and excellent growth will garner a high multiple.
03
What does this mean for my listing vs. selling price?
You can use every valuation method available and still be surprised when the listing price and selling price are far apart. Nobody can tell you exactly what your business is worth: not your banker, CPA, lawyer, broker or mother-in-law. The only individual that will be able to tell you what your business is worth is the buyer — and that will be a subjective evaluation.