Valuation Basics: Key Points To Think About Before Transferring Ownership

Over the next 30 to 40 years, recent studies estimate that as much as $30 trillion in wealth will transfer to the next generation. Much of this wealth will come in the form of private business interests.

How much is your business worth? That is important information when deciding whether to transfer ownership to the next generation, or whether it makes more sense to sell the business to a third party and give the next generation the sales proceeds (or alternative investments purchased from those proceeds). Here is a closer look at business valuation methods and the current state of the merger and acquisition (M&A) market.

Sanity Check

A well-known rule of thumb for valuing manufacturers is five times earnings before interest, taxes, depreciation and amortization (EBITDA). But many businesses sell for more (or less) than this average.