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Understanding the value of your business can help you decide whether to invest in new equipment, find a partner, or secure investment dollars. It can also serve as a benchmark for your company’s financial performance and let you examine it against other companies in the same field.

One way to determine the worth of your business is to calculate the value of the assets, including inventory and property, and subtract any debts or liabilities. This is a great place to start however, you must be aware that your business is more than its assets and liabilities.

You can use the market method for an exact estimate. This method is based on the recent sales of similar businesses. This method uses seller’s discretionary earnings, also known as SDE. It is similar to EBITDA but adds in things like employee outings and charitable donations.

A multiple of annual sales can be used to measure revenue. The number of times you multiply will depend on the industry, trends and your company. A experienced business advisor or broker can offer guidance on the most appropriate method for your particular company. Regardless of which method you decide to use it is important to revise your calculations frequently and talk with an expert business appraiser to get the most accurate estimate of your business’s worth. They can also assist you to prepare for a potential acquisition or sale of your company.