What Is Your Company Actually Worth?

Before you bring your company to market, you need to take a long, hard look at what it’s actually worth. This can be hard for business owners to do. You want the best price, but you may be thinking emotionally—what it MEANS to YOU—rather than what it is actually worth to a buyer who has no emotional attachment.  

The method of valuation used can depend on the type of business, why you are selling, and the buyer.  

There are many ways to assess the value of a company: 

• Asset-Based – what are the company’s current assets and liabilities 

• Market-Based – what is the value of other similar companies on the market 

• Income-Based – what is the profitability of the company currently and projected for the future. 

If you are looking to liquidate your business, the Asset-Based Approach is the most straightforward. This is the hard value of what the business currently owns: 

• Equipment 

• Inventory 

• Property 

• Intellectual property 

A prospective buyer will weigh what the assets are worth vs. the liabilities.  

If you are looking to sell quickly or in a tough market, the Market-Based Valuation will position you in the buy/sell environment. It is similar to selling a house or other property based on local property values. You can only get what people are willing to pay. 

Most sellers are interested in the third approach--Income-Based. This evaluation is based on not just the bare bones of the company, or its basic market value, but on its FUTURE value as a thriving and growing business under the helm of the new owner.  

A buyer is going to want full transparency and truthfulness (which you should be providing in any case) about the current state of your business as well as its prospects. Is your industry as a whole thriving, or is it teetering? What is your current customer base, and who are the prospective clients? Will they be able to continue that trajectory?  

While there are a number of metrics used in valuing your business, it is essential to do your own due diligence: going over your accounting carefully and making sure that it is all in order, including both revenue and outlays.  

Earnings Before Interest, Taxes, Depreciation, and Amortization or EBITDA for short, is a good place to start. Note, the SEC requires public companies to reconcile EBITDA with net income for a more accurate picture of a company’s worth. It is also important to consider Seller’s Discretionary Earnings (SDE), particularly for small businesses. 

To save yourself a lot of heartache, be honest with yourself, and gather all of your documents and advisors including a good exit planning firm, to determine your company’s value.   

Here at Blue Sky Exit Planning, we are committed to helping businesses sell their businesses at the highest value to the right buyer. A veteran entrepreneur, Joe Gitto has started, run and ultimately sold five businesses in a broad range of industries.  

Schedule your consultation today.