If you’re a business owner who is thinking of selling, you’re probably wondering how much your business is worth. Business valuations can be tricky- there are a lot of factors that go into determining the price. In this article, we’re going to discuss how businesses are most often valued by buyers. We’ll also dispel some myths about business valuations and give you some tips on how to get the best valuation for your company.
There are a few different methods that buyers use to value businesses. The most common method is to look at the business’s earnings before interest, taxes, depreciation, and amortization (EBITDA). This number gives buyers a good idea of the company’s profitability and it’s potential for future growth. Another common method is to look at the business’s assets. This includes things like cash, inventory, real estate, and equipment. Businesses with a lot of valuable assets are usually worth more than businesses with fewer assets.
One myth about business valuations is that they’re always based on the company’s sale price. This is not true! In fact, many buyers are willing to pay more than the company’s sale price if they believe that the business has good potential for growth. Another myth is that businesses are always valued at a multiple of their EBITDA. This is also not true! While businesses with over $1M in earnings are most often valued on a multiple of their EBITDA, businesses with less earnings are often valued on SDE (seller discretionary earnings) which includes profits and adds back your salary.
So, how can you get the best valuation for your company? The first step is to hire a reputable business appraiser. They will be able to help you determine the fair market value of your business. You should also make sure that your financial statements are up-to-date and compiled or audited by a CPA. Buyers will often base their offer on your financial statements, so it’s important to make sure that they’re accurate. Finally, don’t be afraid to negotiate! Businesses are often valued at a higher price than the initial offer, so it’s important to try to get the best deal possible.
If you’re thinking of selling your business, we hope this article has been helpful. Business valuations can be tricky, but if you follow these tips, you should be able to get a fair price for your company.
If you’d like a free appraisal range for your business, simply contact us here.
To learn about common reasons your business might not be worth as much as you think, and what to do about it. Check out this post.