When you sell, potential buyers may want to evaluate your business independently. So it`s a good idea to have your business documents already organized and up to date. For example, you have a retail price of $200,000 in mind, but you want to test your return on investment based on that price. You calculate that your company`s net profit last year was $50,000. Valuing your company`s assets can be a complicated process. It`s a good idea to ask your business advisor or accountant for help. Another way to value a business is to multiply the annual profit based on how long you think the business will operate. This number is called the income multiplier. For example, a company that has made a profit of $100,000 per year in the past three years and can continue successfully for the foreseeable future could sell three to five times the profit, or $300,000 to $500,000.

Pricing a business you own is exciting because it means you`re taking the next big step in your life. It`s also something almost terrifying because it means you`re taking the next big step in your life and you don`t know how much money you`ll have when you take that step. There are all sorts of wrong ways to evaluate your business, most of them have to do with your emotions and how you think about the company. There are also four generally accepted ways to determine the right price. In a sense, it`s a great approach because it gives you a real idea of what a company like yours is worth. The problem with this is that businesses – and small businesses in particular – aren`t really similar. The way this guy manages his sneakers franchise in the nearest mall may not be the way you managed yours at all, so the profitability will be different and so will the values of the two companies. When calculating the value of your business assets, be sure to include your business` tangible and intangible assets. Many financial information services websites offer ways to evaluate your business based on your company`s “rule of thumb." For example, a recommended rule of thumb for evaluating restaurants is that a profitable restaurant is worth two to three times its annual profit. In this case, to get a return on investment of at least 50%, you need to sell your business for at least $200,000.

This approach treats the company itself as a kind of metaphorical black box with a result. The result is return on investment (ROI). For example, let`s say you have a repair service. With this approach, it doesn`t matter what you fix – what matters is your annual net profit minus the likely salary of paying someone to do what you do. Intangible assets include goodwill, patents, trademarks, company name, logo, revenues, zone spreads, code exceptions, and other assets that have value to a particular business or buyer, but may not be easy to sell in the general market. Liabilities include liabilities, mortgages, loans, leases, contracts and debts. When you think about how to evaluate your business, you really don`t have to decide which of these four ways is best – they all are! As Yogi Berra said, “If you get to a fork in the road, take it." But if the industry`s empirical approach suggests a significantly lower price, it may be appropriate to lower your price a bit in response. On the other hand, if the guy at the next mall just sold his similar store for more, raise your price again, at least to some extent, to accommodate that comparable sale. Industries typically develop their own rules and formulas for valuing a business. Therefore, it is a good idea to develop a good understanding of your particular industry. The cost of starting your business from scratch can be used as a guide to evaluating your business.

These are the estimated costs of building a similar business in your industry in the current market. To calculate costs, you need to include all the associated costs when you start from scratch, such as: A refinement of the ROI approach is often referred to as EBITDA, which means “earnings before interest on taxes, depreciation and amortization." This is because this approach adds to the valuation items that do not represent actual cash expenses – depreciation and amortization – money that you do not have to pay if you buy the business directly, such as. B interest on debt and taxes, which are not really internal costs like materials, but are a social bond levied proportionally on all companies in your city or state. The problem of finding good comparable factors is compounded by the fact that the value of businesses varies over time. What a company was worth five years ago doesn`t tell you what your business is worth now. It can be difficult to find up-to-date comparisons for a small business, especially if your business isn`t located in a large urban center. The easiest way to value a business might be to look at its balance sheet. This is a list of the company`s assets and liabilities that shows the net worth of the business. Depending on the company, the balance sheet may contain tangible and intangible assets, as well as a variety of long-term liabilities, some of which may be reduced by negotiating and invoking early termination agreements. If it`s a complex balance sheet, you can simply take the assets you think you can sell quickly and deduct the liabilities to determine the net worth of the business for a quick sale. This approach begins with the synthesis of the value of the company`s assets.

It provides useful information – and distinguishes between the value of an upscale restaurant with expensive kitchen equipment and a hole in the wall with comparable profits. But what is the value of an asset? Is that why you could sell it or what it would cost to replace it? In many companies, the value of the asset depends on its location within the company. If you take it out of the company and sell it as a generic item, the value decreases, sometimes drastically. Nor does the approach add value for “goodwill". A beloved meeting place next to a college can have assets worth as little as a hundred thousand. But while students love it and keep it busy throughout the year, the value of physical assets is only a fraction of their total value. When you sell your business, the return on investment (ROI) method uses your company`s bottom line to determine its value. You can either calculate: Depending on why you`re evaluating a business, you have several ways to determine a basic business value.

If you need to sell the business quickly, you can use tangible assets and short-term liabilities to find value. If you want to get the maximum possible for your business or an exact value for a business you could buy, add more calculations. From another perspective, it doesn`t matter how much the return on investment is: your business is worth what someone will pay for it. The closest way to determination is to look at which companies that are similar to yours and located in the same area or region have recently sold what is called comparable in real estate circles. Calculating goodwill can be a complicated process. Depending on the method you use, you will get different results. You can use different methods to get a price range that you want to set for the value of your business. But ultimately, value is what the market or buyer is willing to pay. If you can afford it, you should seek professional advice on how to value your business through your accountant, business consultant or business broker. Before proceeding with a valuation of a business, it is important to know how you value the different assets and liabilities that you will encounter.

You may not want to include some of them in a quick assessment. Tangible assets are items that you own and can sell or dispose of fairly quickly, such as equipment, inventory, cash, investments, and receivables. You might also have customers who would be interested in buying your business. This could save you the cost and hassle of advertising. After calculating the total value of your business inventory, use it as an indication of how much you want to sell your business. To determine the most accurate value for a business, you need to consider all assets, liabilities, recent profits, future potential, and the skills and abilities of the buyer. .