Categories: Valuing a Business

what is my business worth

When to Value Your Business

The time to determine the value of your company is at the moment you first think about selling, retiring, or moving on to something new.  Recent changes in tax laws make it particularly beneficial to sell now.

Common Misperception in Valuing a Business

It is easy to think that a business is worth what you have put into it. For example, if you have invested 20 years and millions into building the business it should be at least worth a million dollars, right?

Let’s look at different example.  If you bought a car for $40,000 and over 7 years you invested another $10,000 this logic would say that the vehicle is worth $50,000. Is that true? No. The same is true with a business.

Valuing a Business

The value of a public company is basically the reported and projected profit reflected in the price of the company’s traded stock.

Private companies however are valued differently.  Net income alone is insufficient as a basis for valuing closely held businesses.

Since most closely held businesses are not trying to generate a lot of taxable income, it is necessary to uncover everything the owner is taking out of the business.  The total is typically called “owner’s cash flow” or “net owner’s benefit”.

Methods of Valuation

Typically a business purchase price is the owner’s cash flow times a multiple of owner’s cash flow, but there are several other methods that can be used as well depending on the circumstances of the business.

Multiples of owner’s cash flow are basically a measure of the risk of the income stream in the eyes of the buyer.

The higher the risk the lower the multiple. In addition, there are certain norms for different types of businesses. Determining the appropriate multiple for a business takes expertise.

RPR Associates offers several types of business valuations depending on the reason for your valuation.

 

Contact us to schedule a private consultation.

 

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Posted on Oct 1, 2013

Contact Info – David Bandars

 12110 Port Grace Blvd. #201, LaVista, NE 68128

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