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3 ways to establish the value of your business

On Behalf of | Nov 7, 2021 | Business Law |

If you want to retire, change careers or simply move on to a new opportunity, selling your business may give you the capital you need to take the first steps into the next stage of your life. However, receiving a fair price for your business requires you to consider carefully what your company is worth. How can you determine its value?

1. Calculating value based on your business’s assets

If you were to sell your business’s assets — including its equipment, its intellectual property and any existing inventory — and paid off its debts, how much would remain? The remaining value would be your business’s liquidation value. You may also turn to your business’s balance sheet to determine its book value based on current going concerns. These methods are sometimes called asset-based valuation, and it is generally beneficial if your business has made significant investments in products, equipment or other holdings.

2. Estimating value based on your business’s earnings

Estimating your business’s value based on its earning potential could be a useful measure for companies with consistent past profits or those in emerging markets. As the United States Chamber of Commerce points out, this can be done either by examining past earnings or by estimating future earnings.

3. Comparing your business to others that have recently sold

The market-based approach to business valuation estimates your company’s value based the price paid for other, similar businesses that have recently sold. While this can give you a fairly clear picture of what your business could sell for, this valuation method also depends on comparable sales and may not offer clarity if no similar businesses have sold recently.

Identifying the right valuation method can be an important part of your sales strategy when selling your business. You may also want to explore your legal options to create a legal and financial strategy that supports your goals throughout the sale process.