Business Valuation 101: How Much Is My Company Worth?

“How much is my company worth?” If you’re a business owner, this is a very important question you should know the answer to. You should especially know how much your company is worth if you’re deciding to sell your business.

That being said, you may be wondering, “What’s the best way to find out how much is my company worth?”

The brief answer is that you can find an accurate amount your business is worth by performing a business valuation, which is an attempt to figure out your company’s current value, taking into consideration its assets, the likelihood of future cash flow, and other factors.

There are three primary business valuation approaches: the asset-based approach, the earning value approach, and the overall market value approach.

Aside from the approaches, there are four methods to actually achieve a legitimate valuation estimate. They are the following:

Actual Book Value Method

Though this is perhaps the least accurate way to determine your company’s value, it is the simplest and most easy to execute. This method focuses primarily on the actual balance sheet that your company keeps.

Examine the overall value you find and then subtract any assets, expenses, and relevant liabilities. This will likely only provide a rough estimate — and could be far off — but it will at least help you get a close idea.

If you’re actually in the process of selling your company, it might be recommended to perform an initial book value method in addition to a few other approaches to get the most accurate valuation possible.

Public Stock Market Comparables

In this method, you’ll take a look at the public stock market to assess your company’s value. You can take a look at a similar organization’s share being traded or even how your own business is faring on the stock market, if this is your case. This method provides a basis for company value, especially in comparison to your competitors. Other projections might be in order to accurately land at a valuation opinion, but this method could be a good guideline.

Transaction History

The third method we’ll discuss takes a look at the actual transactions your company made with an emphasis on the more recent ones. Similar to the public stock market method, you will focus more on the last few trades and transactions that were made on behalf of your company.

This way, you’ll be able to asses the revenue derived from these transactions, with the objective of producing a projection of what the business could generate from future transactions.

Discounted Cash Flow

This method takes into consideration the overall performance of your company over an extended period of time. The long-term performance of a business is essential to figuring out its value. This method simply takes a look at how much cash your business has generated and how much you expect to generate in the future (with or without you at the helm).

This is a very brief examination of different methods to come up with a fair market opinion of the value of a business. However, a much closer examination performed by experts is recommended to ensure that the business’ value is not over-exaggerated, as well as avoiding the under-valuing what it’s actually worth.

Do you need help selling a business, or would like assistance to find the answer to the important question “How much is my company worth?” Please reach out to Aberdeen Advisors today to schedule a confidential discussion.