How much could my business be worth?

First, establish what the number means

Before asking for a price, define the question: the operating business, a particular group of assets, a controlling ownership interest, or the cash you might receive from a sale. The valuation date and assumptions also matter. IRS appraisal guidance identifies these as important elements of an assignment; it does not set the price a buyer must pay. ^[1]

An advisor’s initial market view, a formal valuation for a specific purpose and a negotiated acquisition offer answer different questions. Ask what each document is intended to do. If an owner wants to retain real estate, for example, the operating company and property should not quietly be treated as one undifferentiated sale.

Use methods that fit the business

Three broad approaches are commonly considered. Their usefulness depends on the company and the evidence available. A conclusion should explain why the selected methods make sense. ^[1]

A headline multiple needs a definition: enterprise value divided by which earnings measure, over what period, with which adjustments? Revenue multiples and EBITDA multiples are not interchangeable. A comparison is useful only after those differences are understood.

Make the earnings understandable

EBITDA means earnings before interest, taxes, depreciation and amortization. It is not the cash available to an owner: equipment investment, working capital, financing and taxes can change that picture. A buyer also needs to understand how the reported results were produced.

BDO describes quality-of-earnings work as examining revenue, income and cash generation, including unusual or out-of-period activity. Proposed adjustments may increase or reduce earnings, such as replacing compensation or related-party rent with an appropriate ongoing amount. ^[2] A quality-of-earnings study is consulting work rather than an audit or other attest service, as Baker Tilly explains. ^[4]

Prepare a separate record for each proposed adjustment: the amount, accounting period, supporting document, reason for adjustment and the cost that would replace it, if any. Calling an expense “one-time” does not establish that it will disappear. Your own compensation, for example, cannot simply be removed if another person must perform the work.

Bridge business value to what you could receive

Enterprise value and equity value are different measures. A negotiated bridge can adjust operating-business value for agreed cash, debt and debt-like items, and the difference between actual and target working capital. Operating working capital often includes trade receivables and inventory less operating payables; the agreed definition determines which balances count. Normal operating working capital should not simply be added again in full. Definitions and the purchase agreement determine the treatment. ^[3]

This arithmetic is not a valuation of your company or a standard deal structure. It assumes these are the only bridge adjustments and does not include fees, taxes or other liabilities. Equity value also does not mean all cash at closing: an escrow, seller note, earnout or rollover can change when and how value is received. The offer-comparison guide separates those components.

Bring evidence and a clear question

Start with enough information to scope a useful analysis. Agree secure disclosure arrangements before sharing detailed records. An initial outline can describe the business, approximate scale, ownership, your objectives and the questions to resolve without attaching a full diligence package.

• Identify the financial periods and reporting basis available, including recent performance.
• Flag customer concentration, owner dependence and unusual changes in results for discussion.
• List property, cash, debt or other items whose treatment could change the sale perimeter.
• Explain what you want the sale to make possible, including your role and priorities for the people involved.

Begin by agreeing what analysis and specialist input your question needs. ThirdSide can discuss the financial story and proposed transaction with you and coordinate the work with the appropriate specialists.