Valuation Made Simple: How to Determine Your Company’s Value

Knowing the value of your business is worthwhile whether you’re preparing for a transaction, making key decisions, determining tax liabilities, connecting with investors, or benchmarking your performance relative to those in your industry. While knowing the value is worthwhile, keeping up with the value of your business is no easy task. 

You likely already know the reasons that it’s hard to quantify the value of your business. From varying valuation methodologies, to a plethora of company-specific variables that can affect valuation, to different multiple benchmarks for different industries, to having your not-so-favorite neighbor down the street mention a second time that he was able to get 20x earnings (chances are good he did not), it can be exhausting to try to determine the current value of your business. But it’s always good for you and your team to know, especially if you have thoughts of either exiting or raising capital in the near future.  

There are three steps you can take to track your company’s value.

#1. Find out the price tag of similar companies.

First, see what other firms similar to yours are being sold for and pay attention to the sales range. Thankfully this is more doable than it may sound. 

Subscribe to the email listing of the more prominent brokers in your space. You can find this out by searching for a Certified Business Intermediary (be sure to check the box for this) under your specialty areas through the International Business Brokers Association. Networking with others in your space is another way to find reputable brokers who handle a high volume of transactions in your sphere. 

Once you subscribe, you will be on the receiving end of their companies listed for sale, and typically you will be able to see the more detailed profiles of their business (i.e., annual revenue, profitability, investment highlights). You will also be able to see a company’s asking price, allowing you to easily back into over time what a standard revenue and/or profitability multiple is for your industry.

Be sure to capture the full value of these emails by attending to more than the asking price. The detailed profiles of other companies like yours can help you know how your company is doing, make informed decisions and consider what investors might expect of you in regards to performance.

#2. Make monthly updates to your Last Twelve Months (LTM) Financial Analysis.

Keep an LTM Financial Analysis up to date, each month that you close your books.

You will want to maintain a financial file that highlights your trailing twelve months P&L (Trailing Twelve Months – TTM or Last 12 Months – LTM). Now that you’ve got a relatively good understanding of revenue and/or profitability multiples in your space, apply those multiples to your Trailing Twelve Months of Financials, allowing you to always know an approximate range of value for your business.

#3. Connect with brokers who specialize in your market.

Lastly, don’t be afraid to pick up the phone and reach out to one of those aforementioned brokers or a local investment banker in your space. It never hurts to establish a relationship and have some dialogue with those active in selling companies in your space. Among other reasons, it could lead to an opportunity for you to buy a company. Reach out to commercial lenders as well, particularly those who specialize in your space. Tell them what you’re seeing, and they can quickly confirm or deny.

Boost Your Transaction Readiness

These three steps will give you information, but more than that, they will boost your transaction readiness. You will have data to support your investable story, and you will make connections that may give you access to investors, capital and growth.

You can position yourself for future fundraising efforts by starting to track your value today. When an investor or a venture capital firm crosses your path, you want to be ready to strike while the iron is hot. That means knowing the value of your business even if you’re anticipating that you won’t need to know it for some time. 

There are many ways you prepare yourself for a transaction, but keeping track of the value of your company is something that will reap benefits in other areas of your business.