There are several methods for determining the value of your business. To name a few:
- Multipliers.
- Comparable company analysis.
- Free cash flow analysis.
The first two are easy but inaccurate.
Here is an example.
You have a restaurant that generates $3,000,000 in revenue and $500,000 of profit. For the sake of argument, somebody tells you that the selling price for a restaurant is 60% of its revenue (the multiplier). That means the restaurant with $3,000,00 revenue and $300,000 profit has the same value. That is obviously wrong.
Comparable company analysis may be effective only if tens of variables about sold companies are known. In the private equity environment, this is confidential information. Even brokers only have access to statistics with 4-5 variables. Comparing companies with only a pinch of KPIs available can seriously distort the result.
Free cash-flow analysis relative to the other two is a laborious method, which requires qualified specialists (which we are) and a large amount of accurate documentation (which we help you to arrange). The result of this efforts your ability to justify your price to investors and prove its accuracy.
The real value of your business may only be assessed by the broker (because of his experience) with a financial background and access to full and accurate books.