How do you calculate the value of a small business?

Your company's assets include anything that has a value that can be converted into cash, such as real property, equipment, or inventory. Liabilities include business debts, such as a commercial mortgage or a bank loan contracted to purchase capital goods. Many small business owners forget to calculate the value of their business, but you can easily remedy this omission. He explained that business owners may have difficulty negotiating with potential buyers if they are not aware of the value of their business.

Comparing your company with other companies in your industry is another way to get an accurate idea of its value. It is usually based on a multiple (usually between 0 and, and this number is used as a multiple against the company's profits. By looking at other companies in the market with similar assets, both tangible and intangible, you can determine the value in the same way. That's why it's important to consult experienced professionals like Business Exits to help you get an accurate valuation of your business.

Before even thinking about how to value a small business for sale, both sellers and buyers need to organize their financial records, which is crucial for accurate calculations. They place too much value on the amount of time and effort they have invested in the business, even if finances don't support such a high valuation. Below are the Standard Industrial Classification (SIC) and North American Industrial Classification System (NAICS) numbers for the industry, plus the number of businesses or units of that business in the U.S. UU.

In short, you need to determine the future economic benefit of the company (financial forecast), adjusting to growth rates, cost structure, taxes, working capital, etc. A well-run business will significantly facilitate the transition of ownership, without losing profits in the process. This approach works best for newer companies with high growth potential, but are not yet profitable. It takes a lot of training and professional standards to determine this, so when the time is right to list and sell your business, don't rely on 2.28 just because it's the market average.

Michael Karu, public accountant for Levine, Jacobs & Company, explains that this is because “salespeople often think that they are the only ones who can manage their businesses properly. Your best angle is to list the production, ownership and resources that make up your company's assets and liabilities, cash and investments, employees and intellectual property.