Valuing and understanding how much a business is worth is by no means a straightforward process. However, due to simplicity and convenience, many small business owners have historically relied on a profit multiplier to establish a value for their business.
Utilizing a profit multiplier, a business could take their EBITDA (earnings before interest, income tax, depreciation and amortization) and apply a multiple. Alternatively, they could use a multiplier against the business’ sales/revenues.
Typically, multipliers are sourced from online publications and they focus on revenues a business generates rather than the net income of a business. But does this yield an accurate valuation? For example, if you were to compare two businesses in the same industry with similar levels of sales, yet one operates at a loss while the other is profitable - could they really be worth the same if calculating their value is based on a sales multiplier?
This is where a valuation report can be more than handy. A business valuation report attempts to determine and assess the value of a business taking into account asset values, financial performance and economic and industry factors. Furthermore, a business valuation provides an analysis of a company's financial data, but can also provide a comparison to industry benchmarks. In addition, a valuator will utilize standardized approaches to valuing a business:
- An asset approach;
- An income approach; and
- A market approach.
The above approaches go far beyond the simplicity of applying a multiplier to revenues or EBITDA. However, we understand that obtaining a valuation report can be time-consuming and costly, ranging from estimates to comprehensive reports that will cost a business owner thousands of dollars. Furthermore, these reports are accurate only at the time of valuation, which may not always align with your business's evolving value.
With interVal's comprehensive valuation platform, business owners can unlock more than just valuation and wealth analysis. Our intelligent reporting and ongoing access empower you to set and achieve your valuation goals within your desired timeframe. Experience the transformative power of interVal and take control of your business's growth today!