How To Determine The Value Of A Business

Add up the value of everything the business owns including all equipment and inventory.

How to determine the value of a business. Use your business assets to calculate net worth When calculating the value of your business assets make sure you include both tangible and intangible assets of your business. Determine the Cash Flow of the business Discretionary Earnings are the Net Earnings of the business before Interest Taxes Depreciation and Amortization plus Managers Salary and other non-recurring expenses. While you may pay more for a business in an industry with high multiples its also more likely to hold its value.

For example a business that is doing 300000 in profit per year sold for at 244X would have a sale price of 732000 300000244732000. Only adjust for expenses listed on financial statements used for your valuation. Earnings valuation is based on the businesss ability to produce future wealth.

Find an Industry with Potential. Its also simple to grasp. How much cash have you generated and how much will you generate in the future.

Base it on revenue. Ask for Seller Financing. Business valuation determines the economic value of a business or business unit.

What your customers want and will buy even if they dont know it yet 3. Cash flow is the single greatest determinant in the value of your business. Multiple analysis is the most common way to value small businesses.

How much does the business generate in annual sales. Add the total value of your net liquid assets to the figure you calculated in step 2. Discounted cash flow method.