How Much is My Business Worth?

Determining how much your business is worth can be tricky, and figuring out where to start can be one of the most difficult tasks. There are several different ways to place a monetary value on a company; the key is to find the method that works best for you and your business.

The most obvious way to determine how much your business is worth is to compare it to similar businesses. Each industry has its own standards, so making a comparison between your company and a similar one is an easy way to measure where you stand with regards to the worth of your business. This method is relatively easy to execute and can help you determine your place among your competitors. The downside to this method, however, is that it uses benchmarks to gauge value, which are based on the industry's average. By using the industry's average, special situations are not accounted for; neither your company's extreme values nor the extreme values of comparable companies are taken into account. Because this method results in only a general idea of how much your company is worth, it is a good starting place, but should be used in conjunction with another method.

Another way to determine how much your business is worth is to subtract your company's liabilities from its assets, leaving you with the amount that you would walk away with, should you pay off everything you owe (this is called equity). After you do this, you can factor in your intangible assets and anything else that adds or detracts from the value of your business. When all this is done, you should be left with your business' value.

Instead of taking the straightforward route of simply subtracting liabilities from assets, you could consider the annual rate of return that your company needs to be successful. Basically, in order to make your investment worth it, how much money does your business need to make? Then you determine how much of an investment it will take to make your targeted return. Compare this against past earnings, and you will see what your business is worth.

The last method is to determine the value of your business' tangible assets, which includes those you can see, like inventory. The worth of your business, then, is the sum of the values of all of your tangible assets.
While no method is always right, these are just a few methods that can help you determine how much your business is worth.