Understanding Business Net Worth and Valuation

Net Worth = Total Assets − Total Liabilities. Total assets include cash, receivables, inventory, equipment, property, and intangibles. Total liabilities include loans, payables, deferred revenue, and other obligations. Net worth is also called shareholders' equity or book value.

Earnings Multiple: EBITDA × industry multiple (most common for SMBs). Revenue Multiple: Revenue × sector multiplier. Asset-Based: Net asset value. DCF: Present value of future cash flows. Comparable Transactions: Price paid for similar businesses. Each method produces different results — context determines which is most appropriate.

Revenue growth trajectory. Profit margins and EBITDA. Customer concentration (key risk: one customer > 30% of revenue). Recurring vs one-time revenue. Management depth and succession. Intellectual property and brand value. Market size and competitive position.

Book value is what your accounts show. Market value is what a buyer would pay. For high-growth businesses, market value typically exceeds book value significantly — driven by future earnings potential. For asset-heavy, low-growth businesses, book value may be the primary reference.

Grow recurring revenue. Improve EBITDA margins. Reduce customer concentration. Build systems that operate without founders. Protect IP formally. Maintain clean, audited accounts. Demonstrate consistent growth over 3+ years. Each improvement increases the multiple a buyer or investor will apply.