How to Value a Manufacturing Business

industrial factory image by JoLin from Fotolia.com

The owners of a manufacturing business need to know how to value the business, especially if they plan to apply for an expansion loan or to sell the company. You should estimate the value of your manufacturing business at least quarterly, and many owners do so monthly. You will quickly notice any negative trends and be able to make adjustments to your business plan or manufacturing practices. Several factors determine the value of a manufacturing business, including the value of your equipment, inventory on hand, cash assets and all financial obligations such as payroll and taxes.

Calculate the value of all cash assets. Cash assets include all money owed to the company that is due during the next 90 days (accounts receivable), petty cash, inventory, bank accounts including money market funds and certificates of deposit, and all other assets that you can turn into cash within a 30-day period.

Calculate the value of all non-cash assets. This category includes the value of your manufacturing equipment, money due to the company at a future date beyond 90 days, bonds and other securities that cannot be readily exchanged for cash, office equipment and furniture, collectible art, real estate owned by the business, and all other assets that cannot be exchanged for cash within a 30-day period.

Add the cash and non-cash totals together for the sum value of all assets.

Calculate the value of business debts and other liabilities. Business liabilities include debt payments due during the next 90 days (accounts payable), payroll and taxes, pension and 401k payments, overhead and liability insurance, unpaid invoices for services or inventory already received, advertising costs and all other financial obligations due during the next 90 days.

Subtract your business’ liabilities from the sum value of its assets to find its value. The difference may be positive or negative, and it may change in cycles throughout the year if your business is seasonal in nature.

Tips

  • Some financial securities, such as stocks, have two different values. Book value is the amount listed on the manufacturing business ledger. Market value is the current selling price of the asset. Market value fluctuates frequently.

References

About the Author

Diane Perez is a writer who contributes to various websites, specializing in gardening and business topics, and creates sales copy for private clients. Perez holds a Bachelor of Science in education from the University of Miami.

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