This week, a Nexstar Network® member asked, “What’s a good rule of thumb to evaluate the worth of my company?”
My answer is: it depends on which side of the fence you are on. Let’s look at this from 3 different perspectives: a buyer’s perspective, a seller’s perspective and how your company is evaluated by the bank.
In terms of a selling and buying situation, your company is worth as much as possible if you are the seller and as little as possible if you are the buyer.
If you are the buyer, base the value on the number of service calls ran over a 12-month period.
If you are the seller, let me say this:
Your company is the golden goose that lays the golden eggs every month. If you are going to sell the company, make sure you have a plan to put the proceeds (they money) you are going to receive (after you’ve paid your taxes) into a vehicle that’s going to return those golden eggs. Keep in mind that once you sell the goose, the golden eggs aren’t yours anymore.
If you are looking for an evaluation for borrowing purposes, look at your Quick Ratio. Banks lend money on cash flow. If you’re above a 1:1, you can borrow money. If you aren’t, then you can’t.