The Internet can tell you how to refinish furniture, make the perfect paella and plan a vacation for cheap. It can do a lot more than that, of course – but the Internet can’t tell you exactly what your business is worth. Valuing a business is a complex and timely process, as much of an art as it is a science.
Sure, you’ll find free “business valuation calculators” all over the web. There’s no harm in using one for fun, just as there’s no harm in taking a free IQ or personality test, as long as you realize that the results won’t tell you much. When it comes to free business valuation calculators, you get what you pay for.
Determining a company’s valuation isn’t as easy as just entering a few numbers into a calculator and hitting enter. If you speak with any qualified business appraiser, they’ll surely tell you that dozens of hours are typically spent on a small company’s valuation. Various things that a calculator can’t take into consideration are needed for any business valuation. Some of these things include:
- The industry’s history and future economic growth opportunities
- The economic history and future of the location of the business (sometimes down to the street locations)
- How much time the current owner spends on the company
- The size of the revenue to EBITDA, or the profit margin, in comparison to the industry’s competitors
- The qualifications and length of time the staff has been with the company
- How many staff members are in the company
- If the company is unionized or not
- If there’s a lease in place on the building or equipment, and if this lease can be broken by either side
There is no calculator that can take into consideration these major variances for each business. While some calculators may give you a range, that range can be within 50% to 200% of an accurate value. In other words, a $100K company could have a range of $50K to $200K, or a $1M company could swing from $500K to $2M. If you’re looking to do anything of value with these calculations – from estate planning to divorce, or negotiating when trying to buy a business – it would be a mistake to rely on these calculators.
The only way to get an accurate valuation that you can trust is to consult with experts who know what questions to ask. LGA’s business valuation team can help. We’ll work with you to determine exactly what your business is worth, so you have all the information you need to make the decisions that will move you forward. Contact LGA today with all your business valuation questions.
Written by Michael Abramowitz