Your business: you’ve put years of blood, sweat, and tears into it. You know precisely what it’s worth to you. How do you measure the actual value of your business, though? If you’re raising new funding, applying for a loan, or selling your company, the first step is to determine your business value. Luckily, this process is easier than you might think.
Here’s what you need to know.
Understanding Your Texas Business Value
There are a few different methods to determine what your company is worth. Depending on your goals, you’ll calculate your company’s value using one of the methods below. Most methods consider things like your earnings, industry, assets, and any losses or debts your company has.
Here are a few of the most popular methods used to determine business value:
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Asset-Based Valuations. An asset-based valuation calculates the total value of a company’s assets, including commercial real estate and other tangible things. It looks at intangible assets and subtracts the cost of liabilities.
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Earnings and Capitalization. This method considers a company’s likely future profitability. It calculates annual ROI, expected value, and cash flow. From there, it extends predictions into a single point in the future.
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Market-Based Valuation. A market-based valuation calculates a company’s total value by comparing the transactions of comparable companies in the industry.
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Discounted Cash Flow. Discounted cash flow valuation considers the projected value of a company’s future cash flow, minus the cost associated with the company purchase.
Additional Considerations
Here are a few other things you’ll want to consider as you evaluate your company’s value:
Discretionary Earnings
Your discretionary earnings are an excellent starting point for valuation. Discretionary earnings (DE) are the pre-tax earnings your business brings in. DE does not consider non-cash expenses, compensation for owners, interest expense, and income. Additional discretionary earnings include one-time costs that likely won’t occur again in the future.
In some sales, companies are valued at between one and four times their discretionary earning amount. This valuation method is known as the SDE multiplier.
Business Assets
Business assets are an essential part of the valuation process. You should understand how much your assets are worth, minus your business liabilities. If you’re selling a small business, you might choose to conduct an “asset sale,” which essentially means that the buyer is purchasing your tangible and intangible assets, although you as the seller retain liabilities.
Getting Help With Your Business Appraisal
When it comes time to secure an appraisal for your company, it’s smart to get the help you need. Paramount Property Analysts is here to assist you in making smart financial decisions. If you don’t have a current and appraisal on all assets, find a qualified company to help.
Paramount Property Analysts provides business appraisals, land valuations, mineral rights, tax consulting, and appraisals for estate planning. Contact us today to learn more or to begin the appraisal process today.
