How Much is My Business Worth?
People often ask, how much is my business worth?
Well, it’s perhaps the most important question a business owner can ask himself when considering selling his business. How much is your business making, and how much of that can you prove?
If your business is performing well, and you have financials to back it up, it is generally worth a multiple of your EBITDA or the SDE (or other measure of net profit), with that multiple varying by industry, and based on how high your net income is.
Generally speaking, businesses with a larger net profit are worth more than businesses earning less. This is because the earning power of a larger a business higher per year… so the ability to own one comes at a higher price point.
In some cases, businesses are worth the value of its assets along with a multiple of the EBITDA / SDE, like certain transportation companies, while others are solely based on a multiple of the EBITDA + inventory.
It’s important to “add back” certain expenses to get to your business’s true cash flow. For instance, depreciation and non-cash expenses should be added back, as should large one-time expenses that would not be repeated, or personal expenses a future buyer would not have. This will allow you to arrive at a larger EBITDA, improving the value of your business.
A good business broker will work with you to not only figure out your addbacks to get to your true EBITDA, but have industry research and comparables to figure out the multiple for your particular business.
Other Points That Can Affect The Value of Your Business
There are certain points that can make a business more marketable, and sell for a higher value. If you are wondering “how much is my business worth?”, and your business has any of the following, this will positively influence your valuation.
If your business has good management in place, and can run well on it’s own with little owner involvement required, it is considered a valuable aspect of a business and can positively influence its value.
If you have clean books, including tax returns where you declare all income and accurately reflect the operation of your business, that will help justify the price, and allow you to better defend a higher price point.
Businesses where extensive skills or licenses are not required can sell for a higher price point because anyone with the financial means to purchase the business can operate the business.
Wondering How Much Your Business is Worth and Looking For Some Guidance?
For more information on how to calculate much your business is worth, contact us here at Capital Business Solutions or request a valuation today!