What Is My Business Worth?
By Jim Rittenhouse, CPA, CVA, MAFF, Shareholder
This single question can elicit a full range of emotions before even beginning to answer the question. Very few businesses are exactly alike, and often the details of privately-held businesses being sold are not public.
Publicly-held businesses whose stock is actively traded are provided daily information as to their value, however, privately-held businesses do not share the same fact pattern, which is why this question should not be answered carelessly.
Cash flow available to the owner is typically the key ingredient in determining the value of a privately-held business. How efficiently the business handles its resources and turns sales into profit is one measure of this. Other variables, such as the type of industry and whether synergistic processes are in place, impact the value as well.
Some businesses are only worth what the assets can be sold for, less any outstanding debts. Cash transactions which are not captured by the accounting records do little to support value, only what is captured is measured.
As a business owner or potential business owner, this “worth” question should be asked frequently. While you may not be selling out tomorrow, understanding the process used to determine value may impact the decisions you make today.
Learn more about the value of your company by talking to one of our advisors today.