To determine what your company is worth, a business advisor will ask you to begin by getting a few things in order. You’ll need to organize your financial statements and documents first. These will be important when referring back to operational costs, tangible assets, and overall revenue. As one can imagine, what one owns, owes and has in the bank are all factors when calculating your business’ value. Other questions a business advisor will ask of you include:
1. What does your business earn?
The first step is understanding how profitable your business is. The earning times some industry multiple gives you an idea of how much your company is worth. Your business broker can tell you what important factors to consider in your valuation.
2. Does your business have growth potential?
A business is only as valuable as its potential for increased growth. An investor will see how much your business has earned up to this point but they will be most interested to see that it has the ability to continue to grow, even after you are gone.
3. What are some risks?
Depending on the industry, different businesses have different levels of risk. This risk can translate into your valuation for marketability. A business valuation will determine your small business’s risk, and how that affects how much your company is worth.