Your business is worth something, but determining its value can be entirely tricky. If you operate an online-only enterprise, one that relies exclusively on advertising income, then your business might be valued at 12 times its average monthly earnings. Thus, if you pull in $500 per month, your business might fetch $6,000.
But the majority of business valuations are more complicated than that. A significant number of online businesses feature storefronts and for all others there are other factors to consider, such as overhead. Moreover, your business model may be entirely unique, and that means carefully assessing what it might be worth and going from there.
In the event that you are considering marketing your enterprise, the following should be ruminated as you determine valuation.
The easiest way to valuate any business is to base its worth on your total earnings from the previous year. However, those earnings alone will not be enough: you need to tally your net profit and include interest, taxes and amortization expenses.
No two businesses are alike. By the same token, industries usually diverge more than they converge. You could have two companies earning $1 million dollars annually, but their valuation would be distinct.
For instance, a PR, advertising and media company might be worth about three times of its earnings, while a high tech enterprise might be worth six times its recent earnings. The differences are due largely to appeal to potential buyers within the industry.
For our example, we have used CNN’s “business worth” calculator to arrive at an appraisal. For instance, the $1 million earnings PR company would be worth $3 million to $6.5 million based on earnings before interest, taxes, depreciation and amortization (Ebitda). CNN also employs a multiple ranging from 3 to 6.5 times the last year’s earnings.
In contrast, a high tech company might fetch from $6 million to $12 million based on a higher multiple. Similarly, a health-cares services company might be valued between $5 million and $9 million. Moreover, there are other valuations available for restaurant, retail, and manufacturing. Likely, your company falls under at least one category.
Ask a Business Broker
Online valuations can prove sloppy and should be taken with a grain of salt, not to mention the inherent inaccuracy based on incomplete demographic data, location, employee experience, fixed base operation and other considerations.
With this in mind, working with a business broker can help you procure a professional valuation, one based on a variety of factors that no online tool can enumerate. For example, a business broker might examine your leasehold agreement, scrutinize utility bills, canvass the neighborhood, and explore comparables. Likely, the final number that he presents will be far different than what you had in mind. That being said, the figure should be realistic and explainable.
In summation, ready to sell your business or if you simply want to know its current worth, a business broker should be contacted. You will want to gauge this person’s experience and the methodology used to appraise. Further, should you decide to sell your business, ask this individual for references and contact them to verify the professional’s claims — just as you would with a physician, an attorney or an accountant.
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