Once you’ve decided to sell your business, the next logical step is to determine its true market value. We help businesses by managing partnerships and strategic alliances, which means we deal with business valuations on behalf of our clients all the time. There are several ways you can calculate the value of your business.
Calculate the Value of Assets
Add together the value of everything owned by the business, including all inventory and equipment. Take away any liabilities or debts. The remaining amount on the balance sheet of the company is a fantastic starting point for determining the business’s true worth. That being said, the business will probably be worth much more than the total sum of its assets. You can also consider the revenue and earnings that are forecasted.
How much is generated in annual sales by the business? Once you’ve calculated this figure, work with a stockbroker or business broker and find out how much a typical company within your industry may be worth for this level of sales. For example, the value of the company may be approximately double the amount generated through annual sales.
A proper way to calculate worth is to multiply the company’s earnings. You can do this by estimating the company’s earnings over the next few years. If the typical price to earnings ratio is 15, and the earnings are forecasted at $200,000 annually, the business is worth roughly $3 million.
Try a Discounted Cash Flow Analysis
A discounted cash flow analysis can take a look at the business’s annual cash flow and estimate the value of future cash flow using a “net present value” calculation. A great way to get an idea of this is accessing an online NPV calculator.
Think Outside the Box
Financial formulas are not everything when it comes to determining the value of your business. Factors such as geographical location, strategic placement, and current affiliates and synergies should all be taken into consideration as you put a commercial price on your business.
For more information and advice on the best way to sell a business, contact Ashley Capital Group today.