Whether you’re looking for investors, preparing for the sale of your business, or simply want to know the extent of your business worth, having an accurate valuation is essential. There are many methods to assess a company’s worth, and deciding on the best option is dependent on your objectives and the circumstance that you’re facing. In this article, Windes explores some of the most well-known methods to determine a company’s worth, and explains the pros and cons of each.

Book Value

The book value method is a complete list of all assets and liabilities in your company’s accounting that includes tangible and intangible assets like inventory equipment, property, as well as inventory. The formula is straightforward: net worth is the sum of assets less liabilities. This is a simple and quick method to determine the value of liquidation for a business which is the sum that it would be worth in the present if all assets were sold at fair market value. Cons: This method may miss out on intangible assets or debts that may be due over time.

Revenue Multiplier

To determine the worth of a business, multiply its sales revenue by an industry multiplier. For instance, a virtual reality design studio might have high revenues but little profit, whereas a typewriter parts manufacturer might have lower revenue but higher profits. This method is ideal to track growth and predict earnings in the future however it doesn’t take into account long-term expenses. This is why it’s best suited for smaller businesses who don’t need large capital investments or loans in order to run.