In the business world, there is an ever-revolving door of companies being bought and sold. Maybe you are thinking of selling your own business and maybe that is why you are reading this blog to begin with. If you are rolling around the idea of selling your business, undoubtedly you have asked yourself, “how much is my business worth?” An essential question. The truth is, however, that there is no one easy way to calculate the answer to this question. There is no “one size fits all” formula for all businesses. Deciphering how much a business is worth involves many factors, including some that are not even in your control. However, there are some general guidelines and trends in the current market that can help you understand what a buyer might pay for your business.
Our Transworld business advisors have many years of experience calculating a Fair Market Value for our clients. The Fair Market Value is essentially the price that a qualified buyer would pay for your business in an open market. Additionally, and maybe most importantly, Transworld’s business advisors can give expert advice on what a buyer’s bank would finance in connection with a sale.
Another factor is the concept of Seller’s Discretionary Earnings or “SDE”. This is a term that encompasses the seller’s net income before taxes, interest, depreciation, owners’ compensations and benefits, and non-recurring expenses. Basically, it is the amount of money an owner takes out of the business and that can be in many different forms. This is an important number to understand as it directly leads to the value of the business. Beyond that calculation, the business’s past sales, local area, length of time in business, competitive advantages, and management structure are taken into consideration and used along with a multiplier of the SDE.
As you can see, calculating how much your business is worth is not as easy as plugging numbers into a free online calculator. It takes a very specific set of skills and knowledge of the current market. These are things that our business advisors at Transworld possess. We understand that a good sale will greatly impact your life. In many cases, this is one of the biggest and most important transactions on a business owner’s life. We take the responsibility of calculating the worth of your business very seriously. We want you to get the most return on your investment as possible. So, if you are wanting to know for certain if you have a business a buyer would be interested in and what your business is worth, let us help you figure it out!