The value of your business

One of the methods for finding out what your small-company business is worth, is based on something called EBITDA. This acronym stands for earnings before interest, taxes, depreciation, and amortization. It is a metric that allows the seller (and a potential buyer) to value the company based on its cash flow. It also makes it easier to compare your business with others in your industry that might be subject to different tax and depreciation rates and debt levels.

First, calculate your EBITDA. This involves adding back into your net profit items such as interest expenses and taxes. Then find out what multiples of EBITDA other small companies in your industry were sold for. This information can be available through trade associations, which can provide a guide that provides details on small-company sales.

The following multiples are only general benchmarks for California, USA. Multiply these numbers times your EBITDA or cash flow to get a rough estimate of your business's worth.

Manufacturing: 5.5 to 8.5
High tech: 6 to 12
Health-care services: 5 to 9
Retail: 4.5 to 7.5
Public relations, advertising, media: 3 to 6.5
Restaurants: 4 to 8

Remember, your company is unique. Regardless of the industry averages, its value will depend, in addition to the uniqueness and strength of your products and services, on factors such as the talent of your management team, and the culture and power of innovation in your company.