Comments on: How much is my small business worth?

By: kim-free ads

kim-free ads — Sun, 22 Mar 2009 15:52:15 +0000

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By: Helen

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By: frugal living

frugal living — Thu, 19 Mar 2009 04:27:44 +0000

Start with the Balance Sheet. How much equity does it have?

Next look at the Income Statement. What is the return on the investment?

How much would it take to invest in something with similar risk to make a similar income?

By: Adam - NPF

Adam - NPF — Wed, 18 Mar 2009 18:40:17 +0000

As a financial analyst, I see valuations as the meat and potatoes of my work. Your comment is spot on – something is only worth what someone else will pay for it. The difference between what someone will sell it for (bid) and what someone will buy it for (ask) is known as the bid-ask spread which is a measurement of liquidity.

Selling a business is much less liquid than something like T-notes. This naturally leads to a higher bid-ask spread. In order to accurately value your business, I would suggest the following methods:

1) Equity (assets less liabilities). If you sold off every component of the business, what would it be worth? this is a safe worst-case scenario.
2) Discounted cash flows. (You already mentioned it but I would think of this as the high price of your business since it takes growth and futures earnings into account).
3) Comps. What is a comparable business (similar market, customers, volume, debt level, etc) saying it is worth? If a similar business has half the volume, would yours be worth twice as much?

By: the weakonomist

the weakonomist — Wed, 18 Mar 2009 02:32:21 +0000

I too share in the desire to flip businesses, especially bars and restaurants. It's harder to do because there is less of a market to re-sell. I saw it a lot in college though because my favorite finance professor was a part of an LLC that specialized in it.

As for valuing your own business, that's some hard stuff. You can also try using 10-20x earnings or 5-10x EBITDA. It's at least a good way of tracking your own value's growth over time.