How Do I Calculate The Value Of My Business To Sell In California
As a retiring business owner in California, you have come to a point to value and sell your company, but, this can get tricky because what you think your business is worth may not be what the buyer considers it’s worth. To answer your question, “how do I calculate the value of my business to sell in California?”
Read on to learn how to calculate your business’s value and determine its fair market value.
Calculate My Business Value to Sell Now or Within 3 Months
From this case, for example, you’re coming up with the basic worth of your business to sell it quickly in the wholesale distribution business category. If you’re looking to sell it as quickly as possible, you can use tangible assets and current liabilities to calculate business value.
Tangible assets are the items your business possesses that you can dispose of or sell them reasonably fast. They include equipment, investments, inventory, receivables, and cash.
On the other hand, intangible assets include code exceptions, goodwill, company name, zoning variances, trademarks, recipes, and logos. These and other assets of value to your specific firm or buyer are not easy to sell.
Liabilities include loans, payables, debts, mortgages, contracts, and leases.
Quick Calculation Formula to Find Business Value
You can quickly find your business value before selling by considering your tangible assets and current liabilities. You just need to look at your company’s balance sheet.
A balance sheet has all the assets and liabilities of a business, indicating its worth. Depending on the type of business you own, the list may include tangible and intangible assets and various long-term liabilities.
You can reduce most of these through negotiations or terminating some agreements in advance.
If your balance sheet seems complex, you want to make a fast sale and are wondering, “how do I calculate the value of my business to sell in California,” here’s the solution. Take the quickly-sellable assets and subtract the liabilities. You’ll get the net worth of your business. That’s how to value a business quickly to sell now or within 3 months.
Business net worth (net assets) = Tangible assets – Current liabilities
Multiples of Income Method
Multiples of earnings or income is a business valuation methodology that entails applying a multiple to your firm’s profits.
This business valuation formula uses EBIT (earnings before interest and taxes) in most cases. But some companies also calculate their earnings as EBITDA (Earnings before interest, taxes, depreciation, and amortization). See this example to understand EBITDA better: EBITDA Multiples for Trucking Companies | Best Calculations
For instance, if your business earnings are $750,000, you can use a multiple of two. That means you’ll value your business at $1,500,000.
Multiples of earnings (value for sale) = Earnings (EBIT/EBITDA) * multiple
Using Multiples of Earnings to Value Your Business in California
Before you can decide whether or not to use multiples of earnings method to value your business when selling it, ensure the following:
- Keep records of revenue to include and not include in your earnings.
- Identify the appropriate earnings multiplier for your enterprise in the multiples of earnings equation.
- When determining the multiple to use, research the most common or average earnings multiple in other businesses operating in your industry.
- Consider other factors besides the multiple that come into play when using this business valuation calculation.
Net Income Multiple Method
Income-producing businesses on sale use a ratio or factor known as Net Income Multiplier (NIM) when evaluating the market value of the business in California. In short, this method is all about calculating the multiples of net income.
The Valuation Formula Calculation
To calculate multiple net income, multiply your net operating income (NOI) by the net income multiplier (NIM) to calculate multiple net income. You’ll arrive at your business’s market value at which you’ll sell.
Market Value/Business Value (Multiple Net Income) = Net Operating Income X Net Income Multiplier (NIM)
= NIM X NOI.
Hire an Expert to Value Your Business in California
Valuing a business is not easy to execute, especially for the retiring business owner in California. Employing the most suitable business valuation approaches, hiring an expert like a certified business broker, and considering the factors to increase value are all great ways to keep doing.
Certified business brokers help businesses in California prepare for company valuation reports using the various business valuation techniques discussed above. That way, firms can arrive at the most accurate and up-to-date business value.
A business brokerage practice will also walk with you step by step throughout the sale process, making everything easier for you.
To ensure you are getting the most out of your business, you must partner with a professional business broker who is specialized in your industry to guide you through the process. Your business has come a long way, so make sure you maximize the value of your business before selling it successfully in California. If you happen to be a manufacturer, check out this information to learn how to calculate asset valuation for a manufacturing business.
It is currently the perfect storm to value and sell your business in California. With the great resignation that started during the pandemic and the trend to continue till 2023, there are no shortages of experienced and well-financed buyers looking for the next opportunity to grab.