Just about every sole proprietor or business owner has asked this question about the LLC biz worth valuation. But know this: whether it’s pennies or piles of gold, perspective is key. Because where you’re at in the journey of your LLC biz makes a big difference as far as how much worth there is (or, better yet, how much worth there will be!).
Knowing your LLC biz worth matters when considering the purchase or sale of it
In particular, not an outright purchase or sale. But actual shares of the LLC. This is critical, because you’re making an offer to potential buyers to share ownership of your LLC based on the revenue your company’s already making. And it could be a game changer for you.
But how do you get an accurate valuation of your LLC?
- The income method
A fairly easy one to focus on. So what is that?
To get that accurate valuation, you only need to gather the metrics of your average monthly income for your LLC going back as far as 24 to 36 months. Then you:
- Add the amount of cash reserves you have for your business
- Subtract any debts you have with the business
- Multiply that with the “factor” agreed upon by prospective members of your LLC
What is the “factor”? Think of it as a variable:
- Your overall finances of the LLC
- Your current tax situations
- The number of employees you have that are on your payroll
- All the above
This factor can offset or influence the actual valuation, so keep that in mind.
However, the next option might be simpler:
- The market value method
This is merely a lump metric of a variety of assets that would contribute to your overall “book value.” It can:
- Brand names
- Trade names
- Copyrights and patents
- Intellectual property
- Real estate
- Company vehicles
- Inventory count
- Actual income
- Bank accounts
With a little bit of math, you’d only need to then subtract your liabilities. However, be prepared for some disagreements with other shareholders of your LLC, which may lead you to get a business valuation from a third party.
But don’t neglect any minority interests and restrictions
That would include any profit sharing abilities, voting rights and financial investments. Although minority interests are limited in terms of what can be done with the LLC. So value’s often discounted when calculating. Yet some members may have more influence than others.
Restrictions, however, are dead-set written in stone. Regardless of how much or little stake any minority member has over the LLC, selling interest in the company may require special requirements you and your members may dictate. That can include:
- Voting rights
- Investment
- Profit sharing
- Transfer after death
So bear that in mind when considering the value of your LLC.
We know: it sounds like a lot to handle
So it can’t hurt to have an experienced attorney look at your documentation. Perhaps even help determine the value of your LLC right out of the gate!
