The age old question; what is my company worth

The age old question; what is my company worth

Well it seems like such an easy question but the answer like with so many other complicated things is; it depends. Your company is worth something different (your Enterprise Value) depending on who you speak with and depending on what they could do with your company if they owned it.

The key words are “if they owned it”, so while you own it, it will for sure be worth something different to you.

If your are thinking of selling your company then you should expect a potential acquirer to take into account your revenue, your revenue growth rate, your pipeline of future business, your employee talent, your assets and know how, your operating cash flow and EBITDA, and many other metrics in valuing your company (if you aren’t familiar with how to think through these metrics, hangout on our website for some help).

In the end if you have a business that is similar enough to the business model of some large publicly traded companies then you can do a little research on what typical comparables are for your industry? By that I mean, what is a typical company in your industry worth relative to their revenue or EBITDA or net income or better said; what is the multiple of one of these metrics compared to the value of the company?

For example if a company has a market or enterprise value of $100 and they have revenue of $25 then their value is “four times revenue” so if your revenue is $5 then maybe your company is worth $20 by the same industry logic. There is a quick survey I like that NYU does on public companies by industry at : information link

Now don’t be coddled into thinking that it’s really that easy, because you will notice that even in publicly traded companies with efficient markets valuation metrics vary widely by industry, size, day of the week, and number of clouds in the sky. And by the way a small private company is typically going to be able to argue it isn’t fully scaled yet so it’s worth way more than a public company multiple.

However it is one way to quickly approach value. There are many other ways that are more financially complex and you can even hire a third party to perform a valuation of your company. Expect to pay between $1,500 and $8,000 for this service depending on the complexity of your business and the firm. They will use standard valuation techniques and you may or may not like what they come back with.

So if you don’t like what they say at least you learn a few things and you can always dump the valuation report in the trash and claim ignorance if anyone asks you if you’ve had the analysis done, of course I’ve never done that. But in the end much of the value of your company is what it’s worth to you and what it would take for you to give it up.