How Much is My Business Worth?
Use this Simple & FREE Business Valuation Calculator
Dear Entrepreneur, CONGRATULATIONS on building your business! We hope this hustle was worth it. ENJOY our tool and value your business.
This business calculator is based on market multiples averages for your company’s business sector and country of operations.
Market multiples are updated on a weekly basis and are also adjusted by private market transactions.
START HERE ➜ GET an Estimate of Your Business Worth
How to Use Our Calculator?
- The value of your business is as good as the inputs that you provide. Remember to provide accurate information about your business.
- Value that you get represents 100% of Equity in the Company (100% of shares).
- Net debt is a positive number if you have more debt than cash in the business. It will be a negative number if there is more cash than debt in the company.
- Trading market multiples and private transactions multiples are updated on a weekly basis based on the popular bankers’ tools: S&P Capital IQ and Bloomberg.
How Much is My Business Worth?
ALL You NEED to know about estimating the Value of Your Business
Getting a preliminary value of your business worth is one of the first steps when founder or a shareholder is considering one of the following:
✅ Selling a business to a strategic or financial investor (through full or partial exit)
✅ Increasing share capital to fund e.g. future growth or new projects
✅ Merging the business with other company
✅ Buying a business
Selling a Business
Selling a business is usually a complex process that involves a lot of resources from many parties i.e. lawyers, bankers, accountants & auditors. Anyway, usually the hardest part is to find an interested buyer or preferably many of them and negotiate a right price.
This part will usually be well taken care of by your advisors. If you don’t have them, you need to know that all interested buyers will need to conduct a due diligence of your business. You will be expected to provide them with the last 3 years financial statements, tax returns, all significant business agreements. They will need do understand your business model and value it themselves. In many cases a Seller provides the operating financial model in the due diligence process, which helps prospective buyers to evaluate your business worth.
Formal Competitive Process
To maximise the price for your business you would need to conduct a formal process with more than one bidder. This will increase the likelihood to create a competitive process where your bidders are competing for your business and therefore maximise the price. Make sure that process is formal with straight deadlines for submitting the offers and due diligence as well as all bidders have the same access to information in due diligence.
When to Sell Your Business?
The timing is crucial when selling the business. The value of your business will be determined based on the future performance and future financial results. Therefore, the perfect timing is when your business has a history of solid financial results over at least 2 or 3 years and good traction so you can expect several very good years to come. This should be a good basis for cashing on future results and significantly increasing the value for your business.
Private matters, like divorce or retirement may not coincide with good business performance, therefore are, in most cases, not a good reasons to sell if you want maximise the price.
Expect prospective buyers try to decrease the price, if you are somehow forced to sell the company.
Increasing Capital in the Company
To fund a further growth or new project in your business you will need external capital if the company cannot fund the needs itself. You may consider taking capital from new investors in the form of new equity or debt. For most mature businesses debt will be preferable option because it should be cheaper than equity and will not dilute shares of current shareholders. However, you may choose equity when it’s a good opportunity to acquire it at high valuation, which makes it a cheap option and dilution of current shareholders is less of a problem.
Company will need to prove profitability of the new project to potential new investors and provide Use of Needs document which states how the proceeds will be allocated.
Merging with other Company
You may consider merging with other company if you want to benefit from:
✅ strategic fit
✅ stronger market position
✅ economies of scale
✅ cost efficiencies.
Merger is usually a non-cash transaction and shareholders from both companies will be diluted in the shareholding structure. As an owner of the business you need to try maximise the value of the business in the merger so you will be less diluted in the combined entity.
Buying a Business
Buying a business can be even more complex as compared to selling a business, because you need to weight all the risks the company carries against the price you are paying for it.
It’s important to now, that form the buyer’s perspective, you should assess the fair value of the company and pay a lot less. That also means, that value of the company can be different than the price. First one is related to the valuation exercise and a fair value of the business, whereas second one – to negotiations between a buyer and a seller.
Business Valuation methods
There are 2 main methods to value a business:
✅ comparative market multiples ❱ we base our calculator on this method
✅ discounted cash flow (DCF)
Comparative market multiples valuation method
To value a business based on the comparative market multiples method, one should determine which transaction or traded companies are most comparable to the business which is valued based on business industry and geography coverage, size, business performance, profitability and business risks.
Once you determined which trading companies or companies being acquired are most suitable for comparison to your business, you should calculate different multiples of which most common are: Revenue multiple (EV/Revenue), EBITDA multiple (EV/EBITDA), EBIT multiple (EV/EBIT) or Free Cash Flow multiple (EV/FCFF). Based on this data you can determine the value of your business by multiplying comparable multiples to your financial results and deduct net debt to get equity value of the business.
Discounted Cash Flow method (DCF)
Previous valuation method was based solely on the company’s financial data and multiples derived from trading or private transaction markets. It also means that it relies on business sentiment towards certain sector or country as well as on comparable companies. If your company is of better quality, enjoys higher margins, stronger market position etc. it should be valued higher than its peers. These business advantages will be reflected in discounted cash flow valuation method.
In the DCF method, you project over 5 years period your revenues, operating profit, capital expenditures and depreciation as well as working capital expenditures to calculate free cash flow to firm (FCFF). FCFF represents the real cash flow generated by the business to al stakeholders – both shareholders and debtors. When you discount FCFF with the weighted cost of capital (WACC), you will derive the Enterprise Value of the company. After deducting net debt, you are left with 100% Equity Value of the business.