Knowing how much your business is worth will aid you in deciding what to pay for a new piece of equipment, to recruit partners or the investment dollars. It also provides an idea of how your company’s financials are performing and can be useful to compare your business’s performance against other companies in your industry.
To determine the worth of a company take a look at the total of all assets such as inventory and property, and then subtract any debts or liabilities. This is an ideal starting point however, it is important to remember that your business is more than its assets and liabilities.
You can apply the market method to arrive at a more accurate estimate. This method is based upon recent sales of similar businesses. This method utilizes seller’s discretionary earnings, or SDE. It is similar to EBITDA but adds in things like charitable donations and employee outings.
A multiple of annual sales can be used to assess revenue. The number of times you can multiply it depending on the trends and industry, and a knowledgeable broker or business advisor can help you determine what is appropriate for your particular business. No matter which method you choose it’s crucial to keep up-to-date your calculations regularly and consult with an experienced business appraiser to provide the most accurate assessment of the value of your business. They can also help you prepare for a potential sale or acquisition of your company.
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