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How Can You Know the Value of Your Business?

How Can You Know the Value of Your Business?

Knowing how much your business is worth is important for a number of reasons, including:

  • You are considering a corporate transaction.
  • You are engaging in estate planning.
  • You are insuring your business.

Either way, business valuation can be challenging, especially when much of your company consists of illiquid assets. There are a number of ways to value your business. Here are three ways to know what your company is worth:

  • Earnings
  • Assets
  • Cash flow

Earnings Method

The value of your business could depend on how much money you make. A prospective buyer would be willing to pay for future earnings. They would use a certain multiple of your earnings or revenues as a guide for how much to pay. Buyers would not just be looking at what you made last year. Instead, they are looking to the future and what you could earn based on your business prospects.

Assets

Your business’s worth could also depend on its book value. You have likely acquired physical assets over time, and you would expect to be paid for what you have acquired if you sell your business. In addition, you have a brand name and goodwill from your customers. Adding together your physical assets plus your intellectual property could establish the value for your business.

Discounted Cash Flow

Finally, the amount of cash flow that your business may generate in the future could be a basis for value. You would take projected cash flows and discount them by a rate that reflects what you could earn elsewhere. Then, you would assign a multiple to the cash flow to determine the company’s value.

Experienced Boca Raton Business Attorneys

For help with corporate transactions or estate planning, contact a business attorney at Rubino Findley PLLC online or call us at 561.220.0741.

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