How to Find out How Much a Company Is Worth
If you are considering buying or selling a business, you will first need to find out how much the company is worth. Keep in mind that a private company’s value isn’t set in stone until the sale is final. Estimated values usually have a range from high to low. The longer a company has been on the market, the closer it will move to the lower range. How do you find out how much a company is worth?
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Instructions
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Find companies that are comparable in industry, revenue and number of employees, and which have sold during the last year in a similar area. Find at least three comparable companies and list relevant information, such as assets, revenue, number of employees and cash flow. Add or subtract dollars from each item on the list as they compare to the company that you want to value. Use these three property values to find the high and low range, as well as the average value of the three, to determine how much the company is worth.
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Determine the book value of the company's assets, as well as the liquidation value of the business. This number is the minimum value of the company, and doesn't usually determine the worth on its own. Other methods are usually calculated and taken into consideration with this value.
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Look at the company's debt payments, cash flows over long periods and revenues. This type of valuation is combined with the book value of the company's assets for a more realistic appraisal of worth. For example, to find the worth of a grocery store, look at annual revenues and inventory. The price range (a low and high) of the company is determined by multiplying 11 percent and 18 percent by the annual revenues and then adding in the value of the inventory, including assets. A small business may be worth from 2 to 4 times the cash flow, whereas a mid-size business may be worth 3 to 6 times the cash flow.
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Hire an appraiser who specializes in appraising businesses. Your estimated worth may seem more credible to outsiders if it is determined by a professional business appraiser and documented on paper.
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Use an online calculator like the one at Net Present Value (follow the link in Resources). You enter the business cash flow estimated for the next four years, the cost of capital for the type of business, and the expected growth rate. The online calculator will determine how much the business' expected future cash flow is worth in today's market. That number will be the Net Present Value (NPV) of the company.
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Consider the deal and terms offered, such as owner financing, payment terms and assumption methods. Easy terms can increase the worth of a company.
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Consider intangible assets, such as trade secrets, company reputation, loyal customers and employees. These intangible assets can greatly increase a company's worth.
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Use several methods described in these steps to determine a range for the value of the company. Find a high and low estimated worth and use the average.
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Tips & Warnings
Other items that contribute to value are name recognition, growth trends in the industry, and the facility's ability to increase production without relocating or undertaking major construction.
Resources
- Photo Credit http://www.flickr.com/photos/secrettenerife/1344623938,http://en.wikipedia.org/wiki/income_statement
