Business Valuation: How to find out What Your Business is Worth

Sep 19

In this video, Kirk walks you through figuring out what your business is worth when you’re thinking about selling. He explains why using expensive firms or comparing your company to big public ones might not give you the right number. Instead, learn how to get a realistic estimate by talking to experts like investment bankers and business brokers. With easy tips on using EBITDA and market trends, this video helps founders understand their business’s value before selling. Perfect for any entrepreneur ready to make a move.

How Much is Your Business Worth?

If you’re thinking about selling your business or planning for the future, the big question is: How much is your business really worth? This is often the starting point for making major decisions. In this article, we’ll break down the basics of business valuation, with simple and practical advice to help you get a clear picture of your company’s value.

1. Skip the Expensive Valuations

A lot of people think they need to hire pricey valuation firms or run complicated calculations like discounted cash flow (DCF) to figure out their company’s worth. But for many small businesses, this isn't necessary. These methods can be costly and might not be the best fit if you’re just starting the sale process.

2. Don’t Compare Yourself to Big, Public Companies

It’s easy to look at large, public companies and think your business should be valued the same way. For example, if a public company is valued at 15 times its earnings, you might expect yours to be similar. However, public companies have advantages like size and access to more investors, which means their valuations are usually much higher. Private businesses are different, so those comparisons often don’t work.

3. Talk to Industry Experts

When talking to experts, you’ll hear about valuation multiples like EBITDA or revenue multiples. These numbers are used to figure out what a business is worth. For example, companies in your field might sell for four times their EBITDA. These multiples help you quickly see if your expected sale price is reasonable based on your company’s finances.

4. Know What Valuation Multiples Are

5. Additional Resources and Valuation Tips

Candor Advisors has a lot of tools to help you understand how much your business is worth and how to increase that value before selling. Check out their insights section for videos and expert tips, or schedule a consultation for personalized advice to help you get the most for your business.

Key Terms in Business Valuation

Discounted Cash Flow (DCF): A way to figure out how much a business is worth by estimating its future cash flow. It’s usually too complicated for smaller businesses.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A way to measure how much profit a business makes from its main operations. Many businesses are valued based on a multiple of their EBITDA, which helps estimate what the company is worth.

Valuation Multiple: This is a ratio that compares a company’s value to a financial metric like revenue or earnings. It’s used as a quick way to gauge how much similar companies are worth.

Market Participants: These are individuals or firms that actively engage in buying and selling companies, such as investment bankers, business brokers, and M&A advisors. They provide firsthand insights into how companies are valued in the current market.

By focusing on these areas, you can get a clear and realistic view of your business’s value before making any big moves.