How to Determine your Business Worth

Over 26 years, we have sold hundreds of large private companies, so we know when appraising the market value of a business how vital it is to address and assess the key drivers in a business before trying to ascertain an appropriate multiplier.

Valuing a business is a complex process: no two businesses are identical. This means there are different factors that need to be applied even to what appear to be the same sort of businesses in the same industry sector.
Using a normalised EBIT (Earnings Before Interest and Tax), EBITDA or EBITPDA (Earnings Before Interest, Tax, Proprietor’s Salary and Depreciation and Amortisation) and applying an ‘industry normal multiplier’ risks an incorrect appraisal, which could have dire consequences if taken out to the market.

Over 26 years, we have sold hundreds of large private companies, so we know when appraising the market value of a business how vital it is to address and assess the key drivers in a business before trying to ascertain an appropriate multiplier. There are six variables we investigate and these are:

1. the customers
2. the suppliers
3. the product or service
4. the plant
5. the premises, and
6. profitability

Once the broker has gone through this process, they consult their database of businesses sold to see what has sold that is similar, how long it took, whether there were any sticking points and what the purchaser paid. Also, statistics on sales made throughout the industry are compared. All the above data is then correlated to calculate the correct multiplier, which is applied to the EBIT or EBITPDA to arrive at a market value.