Understanding the value of your business could help you decide if you should invest in new equipment, look for an investor or secure investment funds. It also can provide an estimate of your business’s financial performance and let you compare it to other businesses in the same industry.
One way to evaluate the worth of a business is to calculate the value of assets, such as property and inventory, and subtract any debts or liabilities. This is a good starting point but remember that your company is more than just its assets and liabilities.
To get a more precise valuation it is possible to use the market method that is based on what similar businesses have sold for. This method utilizes what’s known as seller’s discretionary earnings, or SDE, which is like EBITDA however it adds in things that aren’t necessary for business operations, like employee outings, charitable donations and one-time purchases.
A multiple of annual sales can be used to measure revenue. The multiplier will differ based on the market trends, the company’s performance and. A experienced business advisor or broker can give you advice on the right method for your specific company. Whatever method you decide to use it is important to revise your calculations regularly and consult with an expert business appraiser for the most accurate estimation of the value of your business. They can also assist you in planning for a possible sale or acquisition of your company.