Business Valuation: How Much is My Business Worth?

Eugenia | Blog Posts, Startups Tips & Tricks | June 15, 2009

I’ve asked myself this question for the first time about 2 years ago, when a Private Equity Fund emailed me and my associate and asked for a meeting. They were interested in buying our business and wanted to know our price. My first reaction: panic!
“How much should we ask?”
“What if it’s too much and they laugh at us?”
“What if it’s too little and they still laugh at us? ”
“How much is our business really worth?”

Since none of my friends or family members knew anything about M&A or Business Valuation, I turned to my next best friend in need, Google.

I searched all night keyword phrases like “business value”, “measure business value”, “business valuation” etc. and read tons of articles on the subject. At the end of the day, I still hadn’t found what I was looking for: the magic math formula which would reveal my business value. I had found several formulas though, and they all gave me results ranging from $35,000 to $350,000.

Ok, that’s a progress (I guess), but which value is the right one? Should I ask for $35,000 or $350,000?

Well, time passed by and, if someone asks me now how they can measure their business value, I can say with great wisdom: “it depends!” . I know, I too hated that answer but unfortunately, it’s the right one. Measuring how much a business is worth cannot be done with a simple formula, it takes into account many criteria:

- the team behind the business. Without a great team and a great management, net profit, profit margin or yearly revenue are just number, with no real value.

- profit and revenue evolution. If you had revenues of $100,000 the first year, $300,000 the second year and $700,000 the third year, you might be more appealing than a business with $800,000 in revenues the first year, than sudden drop to half the second year.

- market size and market share. If we have 2 companies with the same financial indicators, but one on a $1 million market and the second one on a $10 million market, the second company has a higher growth potential because it’s operating on a larger market. The number of competitors on each market and the market share they hold is also important though; too many competitors might mean lower profit margins and larger marketing costs.

Because I talk about online businesses, I haven’t said anything about a company’s assets; I’ve just assumed they didn’t have any .

However, for Math formulas lovers (much like myself), here is a business value calculator:
Later update: it seems like bizak.com no longer works.

Other online calculators you may find on CNN Money and FastBusinessValuations.com