What Is My Business Worth?
Many factors go into determining an appropriate purchase price, including market comparables and discretionary cash flow analyses.
But simplistically, VR Business Brokers generally gauges the enterprise or debt-free value of a company as a multiple of its prior year’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) and or Discretionary Earnings.
Multiples depend on many factors, including the size of an organization, its leadership within an industry, historic growth rate and growth opportunities, profit margins, barriers to entry faced by competitors, fixed and working capital intensity, and the degree of customer diversity.
Because each of these factors must be weighed individually, there is no one standard VR Business Brokers purchase multiple.
Professional Valuation Services
Value Goes by Many Names
“Value” is a worthless term by itself because it can mean so many different things. A value determined for one purpose may be entirely different than the value found for another. Relying on the wrong type of value can be an expensive mistake.
Understanding the difference between standards of value can help you interpret their relative worth in your situation:
Book Value is not a standard of value at all. It is an accounting term for the total net assets minus total liabilities on the balance sheet. Intangible assets are usually excluded from book value.
Fair Market Value is defined as “the price at which the business would change hands between a willing buyer and seller when the former is not under any compulsion to sell, and both parties have reasonable knowledge of relevant facts.” Fair market value is used for federal and state tax matters, including gift, estate, income and inheritance taxes.
Liquidation Value is derived from the piecemeal sale of assets. The sale can be orderly or forced, which can affect the value. This value is typically at the low end of the value spectrum.
Intrinsic Value (also called fundamental value) is an analytical judgment value based on the perceived characteristics inherent in the business, without regard to the identity of characteristics of a particular acquirer. It represents the “true” or “real” value of an asset.
Investment Value is the value to a particular acquirer considering his or hers specific personal circumstances and knowledge of the transaction and potential synergies it will create. Investment value can be higher or lower than fair market value.
Invested Capital Value/Enterprise Value is the fair market value of 100% of the equity plus the market value of long-term debt.
Equity Value is the market value of all the assets of a business, including intangible assets and less liabilities.
Minority Value is the value reflecting an ownership position of less than 50% of the inability to make final decisions concerning the business. A 50% owner may have negative control since he or she is in a position to stop actions by the other owners.
Non-Controlling Value is the value of a non-voting interest, such as limited partnership interests or non-voting stock.
Control Value is the additional value inherent in a majority or otherwise controlling interest reflecting the power of control over the business.