When it comes to valuing a business, the profits (revenues or profits) are the key factor. To determine the maximum value of a company, the multiplied by revenue method is used, which involves a multiple of current revenues. Depending on the industry and local business and economic environment, the multiple can range from one to two times real income, or even less in some cases. To get an accurate and precise value for your business, you need to do some research to calculate the multiple of profits. Most commercial buyers will use an industrial multiple of profits to value a company.
To determine the maximum limit, you need to find the lowest price someone would pay for the company, which is usually the liquidation value of its assets. Small service-based businesses usually sell at a multiple of 3 times, while software as a service (SaaS) companies can sell at a multiple of 15 times. Once you have calculated the minimum limit and maximum limit, you can determine the value or what someone might be willing to pay to acquire your business. Factors such as the size of the company, type of buyer, sector and level of owner participation should be taken into account when using a multiple of EBITDA or SDE to value your company.
