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How much is your company worth?

Knowing how others are calculating the value of your company gives you the tools to negotiate if you're selling, banking, or working with outside vendors.


There are as many ways to calculate company value as there are roads to Rome. Here are two easy and common methods used; EBITDA and Asset based.


1) EBITDA method


Gather the three prior years of Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA). The third can be the current year's projections if reasonably accurate. Add any expenses incurred by the owners (cell phones, vehicles, etc) that are not required to operate the business.


Take the average of those three years and multiply that by the average multiplier for the industry and company size and location (often 1-2x).


Subtract any debts in the company.


Add real estate value.


2) Asset method


Calculate the average of net assets (assets minus liabilities) and adjusted net profits for the three prior years. Add the two together and multiply by half of the EBITDA multiplier used above.


Both methods give you a reasonable valuation of your company. Generally, you can calculate both and use the higher valuation of the two.


In both methods you will remove the seller's discretionary items from the profits to show the actual cost of operating the business. If the owner operates the company day-to-day then removing the owner's salary would not be reasonable as a replacement would be required. However, if the owner draws a large salary as compared to what is normally paid in the market then it would be reasonable to show an adjustment to the market value of that role.


If you are considering your options in selling your company email me, Samantha Clark at sclark@harbourcitycapitalcanada.com or call 905-220-5224.

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