How to Value Your Business

Business Planning

Reflection of the Week

How to Value Your Business

If you own a business, you might think of it as your job or passion, but it’s also one of your most important financial assets. Just like your house or retirement accounts, your business has value, and that value should be part of your overall financial picture. In this blog post, we’ll explain why your business is an asset, how to estimate its worth, and how to include it in your long-term financial planning.

Your Business Is an Asset

Many business owners forget this, but your business is more than just something you work on day-to-day. It has the potential to grow in value, produce income, and even be sold one day. That makes it an asset—something you own that has value and can help you build wealth.

Think of it like real estate. When you buy a house, you don’t just think about what it costs today. You think about what it might be worth in the future and how it fits into your financial goals. Your business deserves the same attention. If you’re putting in years of hard work, you want that effort to support your personal financial goals—whether that’s retirement, funding your children’s education, or leaving a legacy.

How to Value a Business

Valuing a business doesn’t have to be overwhelming. While there are complex methods for larger companies, small business owners can start with one of these three approaches:

  1. Income-Based Valuation
    This method focuses on how much profit the business earns. A simple formula is:
    Business Value = Annual Profit × Industry Multiple
    The multiple typically ranges from 2x to 5x, depending on your industry, customer base, and growth potential. For example, if your business earns $100,000 in profit, it might be worth between $200,000 and $500,000.
  2. Asset-Based Valuation
    This approach adds up everything the business owns—equipment, inventory, cash—and subtracts what it owes (like loans or outstanding bills). This method is useful for companies with many physical assets, like manufacturers or retailers.
  3. Market-Based Valuation
    This approach compares your business to others that have recently sold. You look at the sale price of similar businesses in your area or industry and apply those trends to your business. Websites like BizBuySell and BizEquity provide searchable databases and valuation tools to help you get started.

Consider working with a professional business appraiser if you want a more detailed and customized valuation. A formal valuation can cost between $3,000 and $10,000, depending on your business size and complexity. CPAs, business brokers, and Certified Valuation Analysts (CVAs) are often qualified to perform these appraisals.

For a quicker (and less expensive) option, some firms offer limited-scope reports for under $1,000.

How to Include It in Your Financial Plan

Once you have a sense of your business’s value, it’s time to put that information to work in your overall financial plan.

  • Set Financial Independence Goals: Will you sell your business to help fund your retirement? Or will it continue earning income after you step away? Knowing the value can help you set more realistic goals of how much you’ll need for financial independence.
  • Protect Your Business: Consider life or disability insurance, a buy-sell agreement, or a succession plan to ensure the value of the business is protected in case something unexpected happens.
  • Diversify Your Assets: Don’t keep all your wealth tied up in your business. Use profits to invest in retirement accounts, real estate, or other investments to spread risk.

Your business is more than your job—it’s a powerful financial asset. Whether you plan to sell it one day, pass it on, or let it fuel your retirement, knowing what it’s worth gives you more control and confidence in your financial future. Don’t wait until you’re ready to exit—start valuing your business now so it can take its rightful place in your plan.

Questions of the Week

  1. How confident are you in the current value of your business, and what steps can you take to better understand or increase that value?
  2. If you plan to retire, sell, or step away from your business one day, how will your business’s value support your personal financial goals?
  3. What changes could you make now—like improving profitability, protecting key assets, or diversifying income—to strengthen your business as part of your overall financial plan?

Tools of the week

You can find free or low-cost online valuation tools:

These assessments won’t be as accurate as an in-depth valuation with a professional, but they can at least get you started in thinking about your business’s strengths and area of improvement when it comes to valuation.

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