How to Evaluate a Business Worth

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Knowing the value of your business can assist you in deciding whether or not to invest in new equipment, find a partner, or secure investment dollars. It also provides an overview of how your business’s finances are performing, and could be helpful in comparing your company’s performance to other companies in your field.

To assess the value of a company to determine its worth, add all the assets, such as property and inventory, and subtract any liabilities or debts. This is a good starting point but be aware that your business is more than its assets and liabilities.

For a more accurate estimate it is possible to use the market method that is based on what similar businesses have sold for. This method employs seller’s discretionary earning, also known as SDE. It is similar to EBITDA but it includes things like charitable donations and employee outings.

A multiple of annual sales can be used as a way to evaluate revenue. The multiplier will differ based on the market, trends and your company. A knowledgeable business advisor or broker can give you suggestions on the best method for your specific business. No matter which method you choose it is important to revise your calculations regularly and consult with an expert business appraiser for the most accurate estimate of your company’s value. They can also help you plan for a possible acquisition or sale of your business.