What's your business worth - really?
Take the guesswork out of setting a sale price by calculating your business's 'Ebitda'.
(FSB Magazine) -- If you want to find out what your business will fetch, you'll have to tackle something called Ebitda. This tongue-twisting acronym stands for earnings before interest, taxes, depreciation, and amortization and is a metric that allows you (and a potential buyer) to value your company based on its cash flow. It also makes it easier to compare your business with others in your industry that might be subject to different tax and depreciation rates and debt levels.
First, calculate your Ebitda. This involves adding back into your net profit items such as interest expenses and taxes. Then find out what multiples of Ebitda other small companies in your industry were sold for (see below). This information is often available through trade associations as well as Pratt's Stats, a guide that provides details on small-company sales.
Remember, these multiples are only benchmarks. Says Dolliver Frederick, CEO of Frederick Capital a business broker in Newport Beach, Calif.: "Your company is unique. Regardless of the industry averages, its value will depend on factors such as the talent of your management team and whether you are an innovator."
Multiply these numbers times your Ebitda or cash flow to get a ballpark estimate of your business's worth:
What's your business worth? Is this a good time to sell? What's the best way to get a good price for your company? Tell us what you think.To write a note to the editor about this article, click here.