Most business owners looking to sell as a going concern simply want an easy way to determine what their business is worth.
Method based on assets:
Simply divide the value of assets by the value of liabilities.
It is necessary to estimate the future economic benefit of the business (by forecasting financial statements), adjust for growth rates, cost structures, taxes, working capital, etc., and then discount that present value to the future economic benefit. Calculate the discounted cash flow or capitalize earnings based on discount rates.
This is the method we should concentrate our efforts on.
To calculate your business’s value quickly, you simply multiply the SDE by the industry’s average market multiple.
It’s crucial to know what your market multiple is, and access to successful transactions is crucial in this research. If you want to buy a business, you’ll likely need a business broker who holds a certified business intermediary (CBI) designation, or a mergers and acquisitions specialist. Depending on your company’s individual characteristics and circumstance, either of these professionals can determine the average market multiple for your industry. There are many factors that go into determining this, so don’t just rely on 2.28 just because it’s the market average when listing and selling your business. Consult a specialist for more information.
By determining the value of your company, you can determine if it is time to sell and cash out now, or continue to build to increase its value in the future.
Ready to discuss the value of your business?
Steve Niehaus, MBA, CBI, CM&AP