At some point, you may want to sell your business to retire or pursue other ventures. When that day comes, you’ll need to know the value of your business to ensure you get a fair price for it. You can use the following steps to evaluate your business accurately. Once you know the business’s true value, you’ll be in a better position to consider offers from investors.
Determine the Value of Physical Assets
You should make a list of assets your business owns, such as machinery, tools, and other equipment. In making this list, be sure to subtract any debts that your business also owes. These debts should include loans used to buy the equipment. This process will give you an accurate assessment of your business’ assets.
Estimate Revenue
Your next step should be to calculate the annual revenue for your business. This will start by figuring out the average sales your business generates each year. Using that number, you should work with an investment broker to determine what a business with your annual revenue will be worth on an open market. You can alternatively use the price to earnings ratio to determine the sale price. This involves comparing the price of shares in your company with its expected annual earnings. Once you determine that ratio, you will multiply that number by the annual revenue to come up with a sale price. Annual revenue of $200,000 with a P/E of 15 would suggest a $3,000,000 sale price using this method.
Calculate a Discounted Cash Flow Analysis
While this is a complex calculation, there are many financial websites that provide free calculators for determining this value. It involves using your business’ current cash flow to determine future cash flow rates by present standards. This will help potential buyers determine how much cash flow they can expect annually once they take over ownership of the business.
In addition to the calculations involved in evaluating your business, there are other factors that should play a role in coming to a sale price. For instance, geographical location may play a factor. Some buyers may plan to close the business, seeking the property only for its location. In that case, you will want to know what other factors influence the marketability of the property.
