How much is my Business Worth?

Valuing a privately-held business. Gosh, I wish I had a dollar for every entrepreneur and business owner who's asked me for a specific formula. The fact is there is none that works for all service or manufacturing companies. After 24 years in business – a fine accomplishment by the way – it's useful for you to know what factors business buyers will use to measure your company's worth. Your business is as much a financial asset as the money in your savings account. Knowing your company's current market value can help you plan for retirement or give you options if you ever want a career change.

To gain a better appreciation of how businesses are valued, let's first look at who buys businesses. Afterall, it is the buyers that give tangible meaning to valuation discussions.

In general, there are two types of business buyers: financial buyers and strategic buyers. A financial buyer, like a private individual investor or buy-out fund, only buys businesses for a healthy return on investment. This buyer is a number cruncher and evaluates ways to improve a company's revenue and earnings so that one day the business can be flipped to yet another buyer for a profit or go public.