What Is Your Business Worth?

What Is My Business Worth? 3 Easy Steps To Find Out

What is my business worth? I’ve asked this question many times before. Not because I want to sell it. I have worked really hard to build this business, and it’s just nice to know how much it’s worth. If you work as hard as you do, you also deserve to know the value of your small business.

And this is smart even if you’re not planning on selling it today. Remember, if you can’t sell your business, all you really have is a job. Maybe you think you have a great small business, but what you really have is a high-paying job. There is nothing wrong with that. But if you can’t sell your business, it’s not a business. You might think that you’ll sell your business when you retire. But if you can’t sell it, it doesn’t have any value. You’ll have to save money for retirement in some other way. That’s why you need to know what your business is worth.

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How Much Is It Worth?

Although there are several formulas you can use, there are no black-and-white answers on valuation techniques. Conduct your own research, then get independent advice from a business valuer or broker.

By using several valuation methods and comparing numbers, you can cross-check your calculations and get a better idea of your business’ value. Here are four of the most commonly used methods.

Method 1: Asset valuation The value of a business is determined by adding up the value of its assets and subtracting liabilities. It tells you the value of your business if it were closed down today and its assets sold off, but doesn’t take into account the ability of those assets to generate future revenue. For that reason, it may understate the true value of the business.

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How Much Is This Business Worth?

Q: I am looking into trying to buy an existing teashop. The owner said to make him on offer, but I'm not sure of the best way to determine the worth of the business. Do I ask to see his books or do I value it based on the existing clientele? What kind of time frames do I need to have to make this a reality? Once I have an offer and it is accepted, where do I go from there?

A: There are a lot of ways to value a business. There's no "right" way, though you could probably come up with several wrong ones. Ultimately, the business is worth whatever you think it's worth, based on the criteria you set forth. But you can make your estimation by using several different ways to value the business and then choosing the mix that reflects your final value estimate.

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What Is My Business Worth?

The vast majority of small business owners have worked extremely hard to build up their business.  And as the saying goes, when it comes time to move on (be it for retirement, a change of plans, or an untimely death), there are really only three options: sell, pass it on to a family member or employee, or shut it down. 

Given the inevitability of a transition, its more important than ever to understand what your business is worth.  Let's take a look at how to get your arms wrapped around a value.  

First things first, let's go through some definitions. Our concern is in this article on business worth is largely "Fair Market Value" or FMV.  The IRS has definined FMV as 

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Posted by Charles Brown