How to determine the value of a business
Posted: Thu Jan 23, 2025 7:38 am
It can be difficult to value a business on your own because not every entrepreneur knows the current value of all current assets. Therefore, the easiest option is to contact a business broker: he will study your business, learn all the features and will be able to determine an adequate market value.
If an entrepreneur wants to sell a business on his own, there are several methods for doing so.
The market approach compares a business to similar companies that have recently been sold. This method is often used to value a business in dynamic industries where sales data for similar companies is easy to find.
For example, an entrepreneur sells a flower shop. Let's say that a similar flower shop was sold for 9 million rubles, while it had an annual income of 12 million rubles. If the shop has an annual income of 10 million rubles, laos telegram mobile phone number list you can use the multiplier (the ratio of the selling price to the annual income) of a similar business to evaluate:
Multiplier = 9 million rubles ÷ 12 million rubles = 0.75.
Business valuation = Annual income of your business × Multiplier = 10 million rubles × 0.75 = 7.5 million rubles.
This method works well if the entrepreneur has access to data on recent transactions with similar companies.
The asset method estimates the net worth of a business's assets. Subtract liabilities from total assets to get net worth.
Let's determine the value of a flower shop using this method. To do this, we calculate the value of all the store's assets: inventory, equipment, intangible assets (for example, a brand), as well as any real estate or lease rights. Let's assume the total value of assets is 12 million rubles. Now we subtract liabilities, such as loans and outstanding bills in the amount of 2 million rubles.
If an entrepreneur wants to sell a business on his own, there are several methods for doing so.
The market approach compares a business to similar companies that have recently been sold. This method is often used to value a business in dynamic industries where sales data for similar companies is easy to find.
For example, an entrepreneur sells a flower shop. Let's say that a similar flower shop was sold for 9 million rubles, while it had an annual income of 12 million rubles. If the shop has an annual income of 10 million rubles, laos telegram mobile phone number list you can use the multiplier (the ratio of the selling price to the annual income) of a similar business to evaluate:
Multiplier = 9 million rubles ÷ 12 million rubles = 0.75.
Business valuation = Annual income of your business × Multiplier = 10 million rubles × 0.75 = 7.5 million rubles.
This method works well if the entrepreneur has access to data on recent transactions with similar companies.
The asset method estimates the net worth of a business's assets. Subtract liabilities from total assets to get net worth.
Let's determine the value of a flower shop using this method. To do this, we calculate the value of all the store's assets: inventory, equipment, intangible assets (for example, a brand), as well as any real estate or lease rights. Let's assume the total value of assets is 12 million rubles. Now we subtract liabilities, such as loans and outstanding bills in the amount of 2 million rubles.