This month’s issue of Inc. Magazine contains an interesting article on business valuation. Their website also features an interactive version that allows you to calculate an estimated value of your business.

Their data consists of actual company sales. They present multiples based upon various financial measurements (sales, gross profit, cashflow, EBIT, etc.) This is the most comprehensive presentation of such data that I’ve found without paying for a subscription.

But, I do have some words of caution. First, remember that if your company isn’t in the same size range as those that were used to create this data, then the value may or may not hold true for you.

Also, the best measurements of value are likely to be those that are multiples of actual cashflow or EBIT (earnings before interest and taxes) or EBITDA (earnings before interest, taxes, depreciation, and amortization.) These measurements are equalizers across industries, tax structures, and types and sizes of businesses. They represent the "bottom line" in the sense that they are ultimately measures of cash available to investors. There is no better way to value a business. Unfortunately, only some industries in the survey have these types of multiples.

Instead, the values for most of the industries are presented using multiples of sales. This method can yield very misleading results. (They also present a chart of company sales prices to revenues among industries that doesn’t really tell you anything.) What about a company that has a lot of sales, but isn’t profitable? I always tell people, "A business that is not or cannot be profitable is worth nothing more than the liquidation value of its assets."