December 17, 2020

How to Calculate Your Business Valuation

By Yorachel

In defining a business valuation, it could help to think of it as an appraisal judi online. For instance, when you sell your home or a valuable antique, you want an estimate of how much the item is worth.

Generally, valuations are done by calculating a company’s tangible assets (machinery, real estate, etc.) and intangible assets (brand recognition and trademarks) versus the liabilities and debts it currently holds, though different methods may look at different metrics. A company’s value is also impacted by how profitable it is on an annual basis.

“Successfully calculating your business valuation means knowing the aspects of your business that are essential and nonessential and being realistic about what contributes to your effectiveness,” said David Adler, founder and CEO of The Travel Secret. “Most formulas to calculate your value based on income involve knowing your nonessentials, your earnings and your owner’s draw.”

Having a general idea of how much your company is worth can help in several situations. With that information in hand, you can more easily settle disputes, whether they come from a legal issue, the IRS or within your company. While an accurate business valuation can help with the future sale of your business, it can also be helpful for entering a partnership, obtaining a loan or changing ownership – especially if you’re getting a divorce, gifting the business to someone else, buying someone out or exchanging shares.