I’d like to know how to evaluate the worth of my share in my business as a partner.
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I’d like to know how to evaluate the worth of my share in my business as a partner.
I am a partner in a business, and I am about to leave the business, which will
mean the other partner buying my share. I’d like to know if I’m entitled to 50 of
the business’s profit and assets and therefore should value my share as such?
Thanks.
Asked on July 31, 2017 under Business Law, Illinois
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 6 years ago | Contributor
There are MANY different ways to value a business (and therefore the shares in one): they can be valued based on:
assets (e.g. equipment, inventory, property, accounts receivable, intellectual property, etc) owned;
EBITDA (Earnings Before Interest, Taxes, Depreciation, or Amortization), which is basically net profit, and be valued off some industry-specific multiplier of that (e.g. I used to work in educuational publishing in the late 90s and early 2000s; a company would be valued at 8 - 12 times EBITDA)
Free cash flow (which is not the same as EBITDA)
Market share
Etc.
--in short, there is no one answer: every industry has different applicable metrics for business valuations, and different metrics apply to start-up vs. mature businesses, small vs. large, etc.
If you and your partner cannot between the two of you come to mutually acceptable number, contact a local mid-sized or large accounting firm, which can analyze your business and valuate it.
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