Knowing the worth of your business can aid you in deciding whether to invest in new equipment, look see for a partner, or secure investment dollars. It can also provide you with an idea of your company’s financial performance and let you evaluate it against other companies that operate in the same sector.

To assess the value of a business take a look at the total of all assets, including property and inventory, then take out any liabilities or debts. This could be an excellent starting point but it’s important to remember that your business is more than its assets and liabilities.

You can use the market method for a more accurate estimate. This method is based on recent sales of similar businesses. This method employs what’s known as seller’s discretionary earnings, or SDE, which is similar to EBITDA, but adds back on things that aren’t required for business operations, like employee outings or charitable donations, as well as one-time purchases.

Another option is to base the assessment on revenue, using the number of sales per year as a multiplier. The multiplier can differ based on the industry and trends, and a knowledgeable broker or business advisor can provide guidance on what’s appropriate for your specific company. Whatever method you use it’s essential to update your calculations frequently and talk with an expert business appraiser to get the most accurate assessment of your company’s worth. They can also help you prepare for a potential purchase or sale of your business.