How Much is My Business Worth?

Whether you're considering selling your business, seeking investment, or just curious about the financial health of your enterprise, all business owners at some point will wonder: “How much is my business worth?”

And likely follow that question with: “How do I figure out how much my business is worth?”

Here we’ll show you the process of determining your business’s value, so you can better understand how much your business is worth and make informed decisions.

What You’ll Need to Calculate the Value of Your Business

While calculating the value of your business may be a simple formula, you’ll need some things ready to make those formula inputs. Get these items together as you work to determine the value of your business.

Understanding of market conditions

Stay informed about your industry's current market conditions, including growth trends, competition, and economic factors that could impact your business's value.

Understand the value of your competitive advantage

Identify what sets your business apart from competitors. This might include a strong customer base, proprietary technology, a loyal workforce, or a unique product/service.

Having this market understanding will help you identify the industry multiple, which you’ll learn more about below, but you can also use a business valuation service to determine that number if you’re unsure.

How Much is My Business Worth? Your Business Valuation Calculator

Now that you have all of your company’s info that you need, it's time to calculate the value of your business. While there are plenty of methods to choose from to determine a business's worth, one of the most used formulas is the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) multiplier method:

What is EBITDA?

This is your business's earnings before accounting for interest, taxes, depreciation, and amortization. It provides a clear picture of your operational profitability.

The EBITDA Multiplier Method

Industry Multiple: This is a multiplier specific to your industry. It varies depending on factors like market demand, industry growth, and risk levels. You can find industry multiples by researching comparable business sales in your sector.

To calculate the industry multiple for your business, examine recent sales of similar companies in your industry. Industry-specific reports, often available from industry associations or market research firms, can give you insights into industry multiples. These reports may include data on recent sales and valuation trends within the industry. The industry multiple can fluctuate, so it helps to stay up to date with market trends.

Multiply your EBITDA by the industry multiple, and you'll have an approximate value for your business. Keep in mind that this is a simplified calculation, and other factors may come into play, especially for businesses with unique characteristics.

Business Valuation Example

Here’s an example to illustrate how to use the EBITDA multiplier method to estimate the value of your business.

Imagine you own a small manufacturing company that produces custom-made furniture. Your financial records show the following:

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization):	$200,000
Industry Multiple for Furniture Manufacturing:	4.5

To calculate the approximate value of your business using the EBITDA multiplier method, follow the formula:

Your business is estimated to be worth approximately $900,000 based on the EBITDA multiplier method and the industry multiple for furniture manufacturing.

It's important to note that this is a simplified calculation. The actual value of your business may vary depending on several factors not accounted for in this basic calculation, such as the condition of your equipment, the strength of your customer relationships, and the state of the broader economy.

To get a more accurate valuation, especially for complex businesses, you may want to consult with a professional business appraiser who can consider all relevant factors and provide a comprehensive valuation report tailored to your circumstances.

Working With Business Valuation Services

While the EBITDA multiplier method can give you a great starting point, the valuation process can be complex for larger or more intricate businesses. Here’s why you might consider using a business valuation service:

• Accuracy: Valuation experts have the knowledge and experience to consider all relevant factors, providing a more accurate estimate of your business's value.
• Credibility: Having a valuation conducted by a reputable third party adds credibility to your business's worth, which can be crucial when seeking investment or selling your company.
• Legal compliance: Valuation professionals adhere to industry standards and legal requirements, ensuring that your valuation is conducted correctly and ethically.
• Customization: Valuation experts can tailor their approach to your business's unique characteristics, accounting for intangible assets, market conditions, and competitive advantages effectively.