What's Your Company Worth? Whether you're selling your business, getting insurance or sorting through estate taxes, knowing your business's value comes in handy.
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Valuing a business is always an imprecise science, even withlarge-cap public companies. For example, is the value of a largepublic company based on its market price? Its book value? Itspotential worth if broken into parts that have more perceived valuethan the whole? The answer is, there are many ways to determine thevalue of a company. Perhaps the best way to understand the value ofany business, large or small, is to look at who's doing thevaluing and for what purpose. For example, we'll wager that youwould value your family business differently for estate purposesvs. a sale of the business. This is why in many instances, morethan one value can be correct.
Regardless of how a business is valued, there are bothquantitative and qualitative factors that play a role in acomprehensive appraisal. Many of the elements that go into abusiness valuation can be classified in three categories:
- "Hard numbers," such as historical profits, assets,cash flow and liabilities, are always important in determining theworth of a business.
- "Soft figures," such as income and cash-flowprojections, can be very important to a buyer or investorinterested in the company.
- "Intangible assets," such as patents, brand names,quality or reputation of management, location, recipes, customerlists or goodwill often have a hand in determining the overallvalue of a business.