Business Valuation Blog | Understanding Buying / Selling a Company

What Can a Business Valuation Calculator Tell You?

Posted by Business Valuation Specialists LLC on Feb 1, 2021 8:00:00 AM

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A business valuation calculator can provide you with quick insight into how your business is performing and what it might command for sale on the open market. Is this calculator really an effective replacement for obtaining a formal valuation of a company by a certified appraiser? Learn what a business valuation calculator can, and cannot tell you about your company's worth.

What is a Business Valuation Calculator?

A business valuation calculator is a simple tool that allows you to gauge the worth of your company by entering your total earnings, along with other variables, in a fiscal year. Add to your earnings the taxes paid, amortization, net profit, and interest, which is sometimes referred to as EBITDA, to estimate total earnings. By providing earnings data, along with an estimate of your annual growth, industry risk, marketability discounts, and related factors, the calculator can give you a range of values for your business using certain standardized formulas.

A calculator is a useful way for small business owners to get an independent idea of what their business is worth. However, it is no substitute for a business appraisal from an experienced valuation firm that understands the market you operate in.

Business Valuations vs. Valuation Calculator

Business appraisers not only review your income and earnings to calculate the financial worth of your business, they also integrate industry-specific trends and forecasts into the valuation. Since business appraisers take the time to research your business, community, and your assets, they add in subjective variables that would nonetheless affect your company's value if you were to potentially sell it.

For example, if your business is located in a rapidly gentrifying part of town where property values are on the rise and people are flocking to the neighborhood, your value may increase as the neighborhood gets more attractive. On the other hand, if your company is located in an out-of-the-way area, and business has been declining, it might be worth less.

A calculator has no way of knowing this level of information about your company. As a result, the information it provides is only accurate to a broad extent. Were you to rely on the calculator alone to evaluate your company, you might settle for too low of an offer or set an unrealistically high price for your business.

While a calculator is a useful, no-cost check on your business’s worth, it is not detailed enough to be considered a true benchmark. If you are seriously contemplating selling your business, raising capital, refinancing, expanding, or even acquiring a company, you should engage the services of a certified business appraiser. If you would like to get a professional valuation of your business, find an appraiser who is credentialed by a reputable industry organization, such as the American Society of Appraisers (ASA), or the National Association of Certified Valuators and Analysts (NACVA), who can explain the appraisal process to you. Since you will want to rely on the appraiser's report to assist with your business goals, you will need to understand the logic behind the valuation.

Business Valuation Specialists offers business appraisals for a broad range of industries. If you have been holding off getting an appraisal because you have not found someone who understands the particulars of your business, give us a call. We have the qualifications you are looking for and can provide you with an accurate appraisal that will help you decide what is right for your company.

Topics: business valuation calculator, value of a company, business valuation services