Knowing the value of your business is important for many reasons, especially if you are looking to sell in the next few years. But you may be asking, “How do I determine the value of my business?” You should know a few things to help you figure it out. 

A business or enterprise valuation is simply the process of estimating a business’s economic worth or value. In other words, what will someone else pay for the enterprise? 

Why a Business Owner Will Need to Know Their Business’s Value? 

Knowing the value of your business will help an owner to understand where the business stands in the marketplace so you can point your organization and motivate your employees to the next level of performance. A business valuation will help you understand your potential for business growth, it can help you ensure the proper protection of your assets, can help you plan an exit strategy for retirement or to enable you to pursue another venture, can help you develop a plan for the sale of the business or for business succession, can assist you as you work with lenders, can contribute to your trust/estate planning, and it can be fundamental to a strategy for future acquisitions. It also can be necessary for litigation support or to address a marital dissolution.  

How to Determine the Value of My Business 

There are several ways to determine the value of your business: 

  • The asset method. This approach is a simple calculation of the difference between all the assets of the business and all its liabilities. The asset calculation should include all the tangible assets including property, machinery, and inventory. It should include an evaluation of the intangible assets including the strength of the brand, trademarks, and patents. 
  • The income method. This approach requires a determination of the future economic value of the business by forecasting income growth rates, cost structures, taxes, and working capital, and then discounting those calculations to achieve a present value number. 
  • The market method. This approach requires an examination of your competition to see what companies similar to yours in size and revenue have sold for. 

The steps involved in establishing the value of your business include: 

  1. Calculating your annual net income. 
  2. Calculating the multiple that your business can be sold for considering your business’s financial history, any contracted income for the future, how extensive your customer base is, how strong your supplier relationships are, and what other similarly sized competitors have sold for. 
  3. Determining the potential growth rate of your market. 
  4. Projecting your own growth rate. 
  5. Avoiding business valuation mistakes

Seek Professional Business Coaching Assistance 

To enhance the value of your business, get business coaching to help propel your business to the next level. Don’t give up and don’t sell your business prematurely. 

Contact Blue Diamond Consultants. Our coaching services are based on extensive experience through previous success for home service provider businesses.