Knowing the worth of your business can aid you in deciding whether to invest in new equipment, seek a partner or secure investment funds. It can also provide an overview of how your business’s finances are performing, and could be helpful to compare against other companies in your industry.
One method to assess the worth of a business is to count the value of assets, such as inventory and property, then subtract any debts or liabilities. This see could be a good place to start but keep in mind that your company is more than just its assets and liabilities.
For a more accurate estimate it is possible to use the market method which is based on the prices similar businesses have sold for. This method uses what’s called seller’s discretionary earnings, or SDE, which is like EBITDA, but adds back in things that aren’t necessary for business operations, like employee outings, charitable donations and one-time purchases.
Another option is to base your assessment on the amount of revenue, and use a multiple of annual sales. The multiplier will differ based on the market trends, your company’s size and. A skilled business advisor or broker can give you suggestions on the best method for your specific company. It’s essential to revise your calculations regularly and consult a professional appraiser to get the most precise assessment of your company’s worth. They can also help you in preparing for a potential acquisition or sale of your company.