How do you value a small business? Anyone…

By | May 11, 2008

Having run a small business for several years, one of the hardest questions that we face is how much our business is actually worth. When we calculate our annual net worth statement, I’m faced with this issue. How much should I write in that column? The original value hasn’t changed since I first started adding it about five years ago. That’s despite an upturn and a downturn!

Small business valuation is a highly tricky affair: how do you value your assets when you are a school? You don’t have any tangible assets (beyond what the books, pcs and desks are worth!),… how do you value your business when the income stream depends on the staff involved (what if they leave, and they might!)…. how do you value your stock (when your stock is made up word lists, language patterns, and syntax)?

If it ever came to selling the business, it would be quite hard to agree on a final price. We’d be hung up on the amount of effort we put into the business, which would always be quite difficult to measure in dollar terms.

We’ve opted to value our business at one year’s gross profit for the time being, given the risks, the volatility, and the