**The Exit Advisor**
Hi guys, Andy with the Exit Advisor here. I asked five business owners who've never sold a business what their top questions would be. So, I've got 12 questions here on the board behind me. We're going to go through them one by one. If you're curious about it, stick around. Now, the most popular uh the most popular question, what is my business worth?
So, there's two answers here. The short answer is a bit of a copout in that it's worth what someone's willing to pay for it. um you know typically smaller businesses aren't listed on any exchanges and as a result proving the value of of each share and therefore the total enterprise value is is quite difficult. Um there are ways that you can uh objectively define that that value. Uh typically there's there's three kind of accepted ways in in the industry. The first one is the sort of net asset value. So if you're a b if you're looking at a business which isn't doing particularly well but has you know high assets you can work out the equity in the assets. So fair market value less the debt and then you can aortion a small piece of of goodwill onto that as well. Um people think that goodwill is is kind of a bit of a term that's thrown around and there's no kind of objectivity around it but you can actually quantify using uh industry recognized formula to the value of goodwill. So you can you can work out to a reasonably accurate uh degree. The second option is very popular in uh in investment banking which is called the DCF or discounted cash flow model and you sort of use a blend of actual earnings over the past 3 to five years plus uh plus a sort of portion of future cash flows or projected cash flows and you uh reduce them or discount them back to what's called a net present value. that will give you the sort of total enterprise value uh based on a on a mixture of things. Um thirdly, you can use the multiple method. So if you know a business that is sold in your industry or a similar business to yours uh that's sold for X times earnings for example, you can use that on your business. So it's it can either be earnings or EBIT DA or EBIT that it it can range uh range between those as well as a couple of other variables. Um the only difficulty with this mechanism is that sometimes you're comparing apples to oranges. You know, you might compare a business in your industry that's sold, but it could be a hundred times bigger than yours. And so, you know, the question is, is it reasonable to expect that your multiple valuation should be the same as as that business? And the answer, of course, is no. So, you have to sort of discount it back. Uh some of the variables you can you can weight slightly differently. So it will produce a more reasonable valuation.
But with any valuation, you tend to uh you tend to use a blend of those things. So it won't just be one method. You will calculate it across maybe all three and and sort of use two of those to to produce the final figure. And it won't actually be an exact figure. It will be like a range. So you'll have a lower bound and an upper bound. Um, and if you're somebody like me who is certified by the ACCA to value businesses, uh, that's a service that I offer free for plant high companies and, uh, and companies in the construction industry. Um so if you want to know the value then uh then reach out to me and we can we can sort that out for