I Gave my Whole Life to this Business, so it Has to be Worth A Lot

Do you know the value of your business?  What are the tangible assets worth? What are the intangible assets worth? How does the business look to a potential buyer? All of these questions and many more should be answered before you start looking for your Exit.

A business valuation is essential to understand all of these variables.   In order for a proper valuation to take place your financials must be in order and reflective of the past history of the company and the possible opportunities in the future.  An accurate appraisal reduces the risk of leaving money on the table or scaring away prospective buyers.

Many small business owners use the “Rule of Thumb” approach to valuing their business.  This can lead to unrealistic expectations as well under valuation of the company.  A Rule of Thumb is a brief measurement of a company’s worth.  A multiplier is generally used to arrive at a valuation number based on revenues, EBITDA, or some other number derived from the financials documents of the business.  Along with, “Joe sold his business for X dollars and I have more sales than he does” or “My industry association said that my business should be worth X dollars”, many business owners arrive at a value for their business that is not realistic or worse yet projects a value that does not meet your ultimate goal.

Keep in mind the value of your business is in the eye of beholder.  A professional valuation can tell you what an average buyer may pay for your business.  But when it comes to arriving at a mutually accepted value, the professional valuation is just a starting point.

Refer to the following page to compare a professional valuation of a small business and the Rule of Thumb examples.  Note the wide ranges in the Rule of Thumb value.

Valuation-example