Bridging the Value Gap

Jun 25, 2019
 • 
3
 Minute Read

What is my company worth?

Any idea what your car is worth? (probably, you do). Any idea what your house is worth? (also probably, yes you do). What about your business? Any idea what your business is worth? Most business owners don’t know this one.

All companies’ values are measured using a business valuation formula.

My Company’s Value = Multiple X a Performance Measure

Performance Measures:

Depending on the industry your business operates within, there are standard or typical measures most appropriate for your business.

Here are the 4 performance measures explained:

  • Revenue: This is your company’s annualized gross revenue
  • Net Income: This represents what remains after operating costs and cost to produce your product or service are taken out.
  • EBITDA: Earnings Before Interest Taxes Depreciation and Amortization
  • Assets: Primarily, anything you could sell or turn into cash would be a tangible asset.

Multiples:

The other side of the value building equation is a company’s multiple.

Don’t know your multiple? You’re not alone, many business owners haven’t taken a close look at this yet. You can easily find it out HERE.

As a business owner, you can actually grow and improve your multiple, and therefore your enterprise value. Many business owners are unaware that there is a range of possible multiples for any given industry.

How can a company grow their multiple?

There are 5 key areas and only one of them is your company’s financial strength. The other areas are the strength of your management team, how sustainable your sales model is, the efficiency of your systems and processes, and what sorts of opportunities are being acted on currently.

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