In the simplest terms, the net worth of a business is equal to it’s assets minus it’s liabilities. That is what you own minus what you owe. Determining what those two numbers are is usually the difficult part of the equation.
Business Net Worth = Assets ($) – Liabilities ($)
How to calculate business value
Determining the value of your business is a little more difficult than determining it’s net worth. Yes, you read that correctly, net worth is not equal to value. In theory, the business value will take into account possible future revenues and business growth.
Often times the business value is determined by stocks if it’s a publicly traded company. The estimated business value is:
Business Value = Total # of Shares * Current Share Price ($)
The current share price is determined by the stock market. People buy and sell stocks based on whether they think a company will be successful over the long or short term.
Business Value Calculator
Enter the total number of shares and current price of the share to determine the estimated business value or valuation of that business.
So what’s the point of knowing your business value? For one, you can make an accurate determination of what to sell the business at if a larger company was looking to purchase it. Having a set price that the market believe it’s worth is the perfect guideline for proposing a purchase price. It can also be use a negotiation tactic. If the market values your business at a certain number, that means you should get at least that much money for selling it.
Another good reason to understand your business value is to track it’s growth. Sometime companies go way into debt in order to expand. This will cause their net worth to plummet. But if people believe in the success of that company, their stock price will stay the same or go up. Meaning that their business value actually increased while their net value decreased.
Knowing these two pieces of information are key to running a successful business.