Valuation of a Business

What is your business worth? How do you value  a business , in this bog we will discuss valuation. If you are selling your business, you need to be able to accurately forecast revenue. This blog deals with a percentage ownership in your business. If you want to sell it 100% , you can figure the math based on a total sell out.

Revenues and valuation 

Typically if you want to sell a portion of your business, an entrepreneur will ask for a dollar amount based on percentage of ownership. Let’s say you want $100,000 dollars for a 10% ownership stake in your company.  This means you would need to provide accurate documentation that your business is worth $1M.  The math works like this: 10%  $100,000/ .10 = $1M n revenue. You will provide the last years sales. If your sales were $250,000, it theoretically would take you 4 years to get to $1M. Revenues and valuations are based on past revenues or current deals you have working. 

Earnings and Profit

If your company has $100,000 in profit then your earnings multiple would be 10.  We get 10 by dividing $1M/100,000.  Then what will happen is the earnings multiple of a like business can be applied to your business.  This is done as a comparison to see if this is a good investment and to understand the valuation.  Let’s say the earnings multiple for a widget manufacturer is 12. Using the Multiple of 12 X $100,000 the valuation comes in at $1.2M.  In this example the valuation is higher than your number at $1M. This makes sense for a sounder investment. 

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