If you are wondering ‘what is my business worth?’ then it might be time to take a look at your profits and debt or conduct a small business valuation model in order to determine your worth overall. You don’t need to be looking into this only if you want to sell. It’s good to know how much your business is worth simplyfrom the standpoint of having the knowledge and assurance that your work is progressing.
Too many businesses are bought and sold without really getting down to the nitty-gritty of the facts. Asking “what is my business worth?” is a very smart thing to find out. You may not want to sell today but knowing if you can is a good idea in case you do get a good offer. You won’t know what is a good offer or not if you don’t know what your business is worth.
There are several small business valuation methods but probably the fairest way to find out the value of your business is to take a look at your net income. This is the amount that you take home after taxes. Make sure that you include any personal expenses that the business pays for you and multiply it by a standard multiplier. Also include any properties are inventory that the business owns. If you have liabilities then you’d want to subtract that from the value of your small business. However, if you don’t have any inventory or liabilities then you don’t need to worry about that.
Now take the last three years and run reports from whatever budgeting software that you use. You should compare your free cash flow from those three years and find out if it is rising or falling and why. If it is rising and you can figure out what you’ve done correctly and how you can keep that trend going but if it is falling you will need to make some changes if you want your business to be more valuable. Keep in mind that if you’re free cash flow is rising then you will be able to ask at least 10 times the last year’s net returns as a selling price. For example, if your net income was $90,000 last year and your income is rising then you should be able to ask $900,000 for it. However if your income is declining then you’ll be lucky to get $450,000 for it.
Your business will be more attractive if the buyer thinks that the risks are relatively low. If you do get a buyer that it might be a good idea to find out as much as you can about them. If the buyer has other stores like yours or prior experience in the field as well as trained professionals ready to take over, these reduce your buyers risk so they might be willing to pay more. You can reduce the risk yourself by keeping an eye on employee theft and always being honest.
Another thing that you can do is find out what businesses like yours are going for. This could be as easy is checking on eBay or craigslist or other sites and it will give you a good indication of what yours might go for. Of course business valuation is not absolute and if you are really wondering “What is my business worth?” Then you have to keep in mind that those numbers may change slightly depending on who is looking into the valuation.
Always be honest and realistic and underestimate before overestimated. If you valuate your business and overestimate it’s worth and then a potential buyer comes along and does their own valuation, you don’t want to come off as too arrogant when asking “what is my business worth to you?” You may not like the answer and the buyer may think that you were trying to hide things from them.
The more facts you find out about your business the better off you will be. You don’t want to have an unrealistic view of what your business is worth and then be disappointed by the offer. Or worse yet, you don’t want to end up being offended by the offer. This will make it hard to sell for you.