Whether you are considering buying, selling or refinancing a company, you will need to estimate the company value. Expect to calculate a value range instead of a specific worth because there are so many variables that affect company value. Calculating a range from a high value to low value will give a more accurate picture of the company's worth to outsiders. This will also make your sales or financing expectations more realistic. How do you estimate company value?
- Skill level:
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Things you need
- Book value of company assets
- Company long-term cash flow
- Company long-term revenue
Find at least three companies comparable in service, revenue and employee numbers that have recently sold in a similar market area.
Print out a listing of each of the sold companies that includes assets, cash flow, revenue, number of employees, location and any other relevant information. Then add or subtract dollar amounts from each listed item, depending on if the company you are valuing is worth more or less for each listed item. After finding comparable values for all three companies, use the high and low values for your range. Add all three values together and divide by three for an average value as well.
Calculate the book value of all assets owned by the company, including inventory. This will give you the liquidation value of the company and should be the bare minimum value of the company. Use other calculators below and add them to this number to find a realistic sales price or value.
Hire a professional business appraiser if you do not have time to make these calculations yourself. Outsiders may think your estimated value is more credible if a professional documents it.
Consider the company's long-term cash flows, debt payments and revenues. Combine this value with the liquidation value for a more realistic company value. To find the high and low value for a grocery store, multiply 18% and then 11% by the store's annual revenues. Then add the liquidation value of the assets, including inventory.
Tips and warnings
- Exit strategy—the deal and terms offered such as payment terms, owner financing and assumption methods—can affect value.
- Name recognition and industry growth trends also affect value.
- A company is only worth what a buyer is willing to pay, regardless of the estimated value.
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