Valuation: Is Your Small Business as Priceless as You Think?
By Jim Moran
From Bplans
After spending years building your small business, it can be hard to quantify the time and energy you’ve poured into it and the sacrifices you’ve made to get where you are now. Your company probably seems priceless to you, but there inevitably will come a time when you must calculate precisely how much your business is worth.
The value of your company is subjective. Buyers and sellers don’t always agree on what’s valuable and what isn’t, which is why hiring a valuation consultant or a CPA who has experience valuing businesses is a good idea. That said, it’s not overly difficult to come up with a reasonable ballpark valuation on your own—you’ll just need to avoid some of the common misconceptions first-time sellers have.
In nearly every case, small businesses are bought and sold based on the cash flow they produce—with prices adjusted up or down to reflect other qualitative features. Rather than focusing only on cash flow, however, most intermediaries use a figure called “SDE,” or seller discretionary earnings, as the core data point of valuation.
From Bplans
The value of your company is subjective. Buyers and sellers don’t always agree on what’s valuable and what isn’t, which is why hiring a valuation consultant or a CPA who has experience valuing businesses is a good idea. That said, it’s not overly difficult to come up with a reasonable ballpark valuation on your own—you’ll just need to avoid some of the common misconceptions first-time sellers have.
In nearly every case, small businesses are bought and sold based on the cash flow they produce—with prices adjusted up or down to reflect other qualitative features. Rather than focusing only on cash flow, however, most intermediaries use a figure called “SDE,” or seller discretionary earnings, as the core data point of valuation.
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