To find the value of a small business, multiply the SDE by a number between 2 and 3.5, based on a variety of factors including market risk, the company's future profitability, and an industry or geographic standard. Trying to successfully negotiate a deal without a prior understanding of the value of your business places you in a position of losing money. By looking at tangible and intangible assets, you learn what makes your business valuable and how valuable those assets are. Before even thinking about how to value a small business for sale, both sellers and buyers need to organize their financial records, which is crucial for accurate calculations.
Valuing your small business is a beneficial practice for many reasons and not just if you plan to sell. If you're not sure how to calculate the value of your company, talk to a business expert for an accurate valuation. Talking to a professional business appraiser makes it easier to check the value of your business during different stages of growth, preparing you for a potential sale of your business. It largely depends on the needs of your business and when you expect to be in the market to sell your business.
The financial environment is not as friendly as it once was: business owners face strong opposition from banks disinterested in taking new risks. Large companies generally use EBITDA calculations to value their business, and small companies often use SDE, as small business owners often spend personal benefits. For information purposes, and assuming you don't expect to sell your company in the foreseeable future, you don't need to hire a business appraiser. You can use some formulas and create estimates for their value, or you can talk to a business appraiser.
In addition to doing financial fieldwork, valuing your business also requires you to exercise control over any emotion. If you're calculating the value of your company for information purposes only, try using a few different methods to get an idea of how different investors and buyers can value your organization. Feeling confident in your valuation will help you determine precisely how to present investors and raise funds, or set the price of your business to find the right buyer.
