How Much Is A Business Worth?
Valuations are subject to the appraiser’s judgment, skill and quality of methodology. There are several approaches to determine worth. In most cases, we use Fair Market Value. This is defined as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell.
Considerations for determining value include:
- A multiple of earnings compared to like businesses (gross sales or owners benefit times an industry multiple).
- A capitalization of the net profit
- If a business makes little or no money: Asset value is the only value. (Goodwill + Inventory + Equipment + etc.) Can be sold as a whole or liquidated over time.
Remember, many other things can affect the value of a company. Location, size, competition, growth rates, industry trends, quality of books, ease of transfer, control issues, the time you have to sell, terms of the sale, leverage, what business broker you hire. This is a job for a professional. BND is here to help!