What Is My Company Worth?

There are a ton of resources available to all of us via the internet. You can go out there and find whatever information resource you’d like and this has inspired a lot of people to become “experts.” People feel a pain or ache and they go online to become their own doctor. They receive a citation and all of a sudden they are a lawyer because of what they can read on the internet. A small business owner may go online to discover just how to evaluate his own business’s worth, but this is not wise. It’s not wise to be your own doctor or lawyer either.

There is a lot that goes into evaluating your own business and many small business owners aren’t aware of all the variables. Valuation is not something that is done often, either. It is usually the prelude to the business owner selling the business, merging with another company or justifying a massive loan. These are important parts of your business’s history and should not be taken lightly. There are also a variety of ways a professional would assign a value to your company. Here are just some of those methods:

• Market Price – The best way to understand how this system works is the real estate market. You may have bought a house some years ago for a certain price. Then the neighborhood improved and you worked hard to improve the house yourself. Plus, the price of real estate generally rises and now the house is worth a lot more than it used to. Similar forces are at work concerning the value of that business.




• Asset Value – This is a pretty straight forward mathematical evaluation process. The worth of all the assets the company has plus improvements made and the owner’s discretionary cash are valued mathematically.




• Capital Value – This is the accountants dream. It focuses on the the cash flow of the business and less on the property or improvements. This isn’t just about stone cold hard cash, though; it takes into account intangibles such as the quality of the workforce, turn rates, industry trends and so forth.




• Owner Value – This is the most straight forward way to value a business and it works fairly well for very small businesses. This simply takes into account how much money the owner of the business brings in. The owner’s discretionary cash is multiplied by 2.27 to achieve the value of the business.