Is your company worth anything?

You work your tail off to build a company.  You spend countless hours away from your family.  You put your heart and soul into something and then one day someone puts a price tag on all of that effort.  Regardless of how it makes you feel, its something that happens and its often the way you get some sort of payoff for all of the effort you put into your company.  So, let’s look at some ways to think about your company’s value.

To value the company you need to look at a variety of things. Generally, a company gets bought for: 1) its technology, 2) its customers, or 3) its revenue. …or some combination of those. The value of your company is what someone is willing to pay for it. So, the value will be different depending on why another company wants to acquire your company.

Intellectual Property

Think about your intellectual property. Do you have any patents? Is the code you developed unique in any way? Is there a large barrier to entry for others to get into this space? It’s very difficult to place a value on intellectual property. But think of it this way. Would someone buy you to get access to your technology? If so, there is some value to it. If not, don’t add this into the value of your company.

Revenue

Where does your revenue come from? Do you sell products? Services? Do you have subscription revenue? Advertising revenue? Do you have long term contracts? In general the more stable your revenue stream, the more value you can place on it. If you have a great revenue stream, someone may buy you to get access to that revenue. If your revenue is tenuous or requires a lot of effort to maintain, then this component of your business will be valued lower.

Customers

Do you have some premium clients? If so, another company might buy you to get access to your customers. Or maybe you have a lot of clients in a certain vertical market. In that case a company might buy you to get access to a new market. Client base base only has value to a company who would otherwise pay more to acquire those clients themselves.

You can see that there are a lot of factors that may drastically change your valuation, but here are some general rules of thumb:

• A service company may be valued at around the value of its annual revenue +/- ~30%.
• A company that sells a product may be valued at anywhere from two to eight times its annual revenue.
• A company that sells subscriptions (such as a SaaS company) could have valuations of anywhere from about two to four times its revenue.

There really isn’t a good generic answer to this question because there are so many variables that play into what someone would pay for a company. But this is my best attempt at an answer. How did I do? Was this helpful?