This is the number one question business owners have when contemplating selling their business and a key step for both buyers and sellers. Business valuations involve complex calculations involving multiple approaches, calculations, and variables and requires the valuator to have an in-depth knowledge or your companyand financials.
One of the first steps when you partner with TruView Business Advisors is determining the most probable selling price. We take the time to understand your business and financials.
Free Valuation Estimator
Do you want a quick estimate of what your business is worth? Rules of thumbs pricing methods based on multiples of earnings can be used as a starting point in valuing your business. Try our online Business Valuation Estimate tool for a quick high-level estimate.
Rule of thumb pricing calculations are rough estimates and require further analysis if you are serious about selling or buying a business. It is important to consider that you must start with accurate seller discretionary earnings and that there are many variables that can affect the value of your company. Industry trends, cash flow, sales trends, number of employees, owner roles, location, size, competition, regulation, growth potential, customer concentration, vendor concentration, and even the business broker you hire are some of the factors that can influence the price your business will sell for.
At TruView, we have business valuation experts ready to help you value your business. Our daily interaction in the market, access to national comparative sales, and financial expertise can help provide you with a most probable selling price of your business. Contact us now for a free consultation and valuation.
How Are Businesses Valued?
For main street business sales, we are concerned with fair market value – the price at which the business would change hands between a willing buyer and seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
There are three generally accepted approaches to valuing a company:
The Asset Approach
Most small businesses are valued based on a hybrid of market approach and income approach and is based on a multiple of Owner’s Benefit or EBITDA. The buyer is interested in what cash flow is available to them if they purchase the business.
Owner’s Benefit: Also referred to as Owner’s Cashflow or Seller’s Discretionary Earnings or Cashflow, represents the income available to one owner if the company was debt free. This multiple is usually used for businesses earning less than one million dollars.
Owner’s Benefit = Net Income + Depreciation + Interest + Owner’s Salary + Fringe Benefits +- any new expenses for a new owner.
EBITDA: Business that earn more than one million dollars usually are valued basedon a multiple of EBITDA. EBITDA represents earnings before interest, taxes, depreciation, and amortization.
EBITDA = Net Income – Interest – Taxes – Depreciation – Amortization
Free Valuation Form
Want to know how much your business is worth? Fill out the form below to request a free valuation and consultation with a TruView Business Advisor.
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