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Give your business a health checkup with a clear value assessment
For many small business owners, “business valuation” sounds like something you do once in a while, like right before arranging a major financing, selling the company, bringing in investors, or preparing for retirement.
But the truth is, your business’s value isn’t a static number. It’s a measure in time of your firm’s financial health, performance, and potential. And just like a doctor’s checkup, assessing that value regularly can help you spot problems early, such as declining cash flow, uncover hidden value, such as new revenue streams, and make better decisions about where and how to grow your business most profitably.
With a clearer picture of your company’s financial well-being, you’ll be ready to respond to new opportunities when they arise. Whether you’re applying for a line of credit, negotiating a supplier contract, or considering expansion, having an up-to-date assessment of your company’s worth shows professionalism and preparedness. It tells lenders and partners you manage your business with the same discipline you expect from them.
Four ways to gauge your business’s worth
There’s no single “right” way to calculate a company’s value. Each method provides a different lens, and the best approach depends on your goals and industry. Here are four common techniques that can serve as benchmarks in your annual review:
1. Book Value (Asset-Based)
This method tallies your tangible assets—equipment, inventory, property—and subtracts liabilities to show what you’d have if everything were liquidated. It’s a conservative baseline but useful for businesses with significant physical assets.
2. Cash-Flow Valuation
By projecting future cash flows and discounting them to today’s dollars, you can estimate how much income your business is likely to generate going forward. It’s particularly relevant for service or subscription-based businesses where recurring revenue drives value.
3. Revenue multiplier
This approach applies an industry-specific multiple to your annual revenue. It’s often used for younger or fast-growing businesses that may not yet have strong profits but show high top-line potential.
4. Earnings Multiplier (Price-to-Earnings Ratio)
Similar to how investors value public companies, this model uses your net profit multiplied by a typical industry ratio to approximate market value. It provides a sense of what your business might command in an open-market sale.
Turning insights into action
A valuation exercise isn’t only about crunching numbers—it’s about what those numbers reveal. To make the process manageable, treat it like an annual review with four simple steps:
Step 1: Review your assets and liabilities to update your book value. An easy way to do this is to refer to your company's balance sheet.
Step 2: Refresh your cash-flow forecast based on current performance and market conditions.
Step 3: Apply a revenue or earnings multiplier that reflects your industry norms.
Step 4: Compare your results year over year and set concrete action items for the next 12 months.
By following these steps, you may gain key insights to keep your business off the rocks. For example, if your book value rises but cash flow tightens, you may be asset-rich but liquidity-poor. If your earnings multiple lags your peers, perhaps it’s time to examine pricing, expenses, or customer concentration.
By tracking these indicators consistently, you can measure progress in ways that extend beyond simple profit and loss—and make better-informed decisions about where to focus next.
Building discipline—and confidence
Making valuation part of your yearly routine sends an important message to investors, employees, and even yourself: you’re managing for value, not just for survival. It helps you quantify how strategic changes, such as new products, equipment purchases, or hiring decisions, can affect the long-term health of your business.
It can also prepare you for life’s unexpected turns. An owner who suddenly needs to raise capital, buy out a partner, or transfer ownership will already have the data and documentation ready, saving both time and stress.
Start your next “checkup” with the right partner
You don’t have to tackle valuation alone. TD’s small-business bankers can help you interpret key financial indicators, explore credit solutions that fit your stage of growth, and connect you with trusted professionals for detailed valuations or succession planning.
Think of it as a financial health checkup—one that keeps your business fit, flexible, and ready for whatever comes next. Because knowing what your business is worth isn’t just about planning for milestone events like a major refinancing, bringing in investors, or a retirement exit. It’s about planning a bright, solid future for all your company’s stakeholders, including its current owners and investors, employees, customers, suppliers, and the community at large.
TD Bank, N.A., Member FDIC
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