By Josh Patrick
NEW YORK (AdviceIQ) -- You might know the worth of your business, but odds are you don't. Determining your business's value can be tricky -- and potentially critical to your quality of life in retirement.
Here are factors and formulas to consider.
Owner's benefit. The easy way to figure your business' worth uses a multiple of cash flow. Average your past three years' owner's benefit and multiply by a number between three and six.
The hard part: figuring out owner's benefit in the first place, the profit that the business creates plus its non-cash expenses, excess cash you pay yourself. In some cases, your business is worth more or less than the multiple of owner's benefit (sometimes also called seller's discretionary income).
Several values at the same time. The real value of your business, of course, depends on the buyer, as well as why and how much that buyer wants your company.
If your prospective buyer wants your business for investment purposes, your multiple is lower. Persuading a buyer to own your business for its strategic or intellectual capital value raises your multiple.
Also think about who the next owner is. If that person comes from your family or from among your current managers, look for a lower value. If the prospective owner comes from outside, you can look for a higher value.
If you don't find a buyer, face that squarely and confront a liquidation value for your company.