When It Comes Time To Sell Your Business, Get a Professional Valuation

Small business valuation calculator

If you own your own business, you will likely need to consider selling it at some point. You will retire at some point, and you could need to sell before then because of financial hardship, illness or another reason. Even if you are just selling the business to an employee or a relative, you need to know what it is worth so you can be fairly compensated. To get an accurate business valuation, you may need to avail yourself of business valuation services.

What your business is truly worth may be more or less than what you believe it to be. If you have an inflated opinion of your business valuation, you may set the price way too high and not be able to sell it. If you think your business is worth less than what it really is, then you could wind up leaving money on the table. Neither of these situations is ideal, and they can be avoided by using the expertise of business evaluation services to get small business valuations.

When looking to value your business, a valuation professional is likely to take one of three approaches. He or she might use comparable sales of other businesses, take the value of the assets or look at the potential for future sales and weigh it against the risks. In some situations, your valuation professional may use a combination of two or more of the factors to come up with a price. What type of business you have can influence what method to use as well. For example, for an online service business, it would make much more sense to use a valuation income approach to look at prospects for sales. On the other hand, a manufacturing business with lots of expensive machinery may be better off being valued based on its assets.

At a minimum, you can expect to need to show your valuation expert about three to five years worth of balance sheets and income statements. You might also be asked for client lists, an inventory of intellectual property and other documentation that might show the worth of intangible assets.

Keep in mind that selling your business is more of an art than it is a science. Even if you have a firm grasp on assets and sales, it still comes down to whether you can find an interested buyer, and you may have to decide whether you want to get your business sold for less than you expected or hold out for a certain price while facing the risk of not selling your business at all. For more information see this.

Reasons You Might Need an Accurate Company Valuation

Business valuation

When you are self employed, it can be difficult to accurately establish the value of your business. It is much different than working at a salaried position, where you are provided with detailed W2s. When you are the business owner, you cannot simply take into account the total income of the business. You have to also account for things like costs, rent and utilities, product development, marketing, employee wages and benefits, and even expected losses. However, it is important to have an accurate company valuation for many reasons.

To obtain lending

If your business requires additional capital for expenses or to expand the business, you will have to apply for a loan. When you apply for a small business loan, the bank requires specific information about the business, including its business valuation appraisal. If you are unsure about calculating the worth of my business, you may not have the necessary information to obtain a loan and may need to create an evaluation.

Business valuation is largely an economic analysis exercise. Not surprisingly, the company financial information provides key inputs into the process. The two main financial statements you need for business valuation are the income statement and the balance sheet. To do a proper job of valuing a small business, you should have 3 to 5 years of historic income statements and balance sheets available. These small business valuation resources may be especially helpful if you are wondering the best process for calculating the worth of my business.

To sell the business

Perhaps you are ready to move onto other business ventures or you want to retire. Either way, you will need an accurate business valuation of your company to sell it. Buyers will not even consider buying your business if you have never been involved in calculating the worth of my business. The business valuation with the intent to sell may be a little different than the valuation used to obtain lending.

It may seem surprising at first that the valuation results are influenced by your need for business valuation, but business value is not absolute. It is a process of measuring business worth, which depends on two key elements, how you measure business value and under what circumstances. In formal terms, these elements are known as the standard of value and the premise of value. Simply put, your reason for sale will factor into calculating my business worth. If you are selling because you no longer have time to run the business, yet it is profitable, you are likely to receive more. However, if you are losing money and cannot afford to keep the afloat, this will also be taken into consideration.

Insurance purposes

You may also be tasked with calculating the worth of my business for insurance purposes. Your insurance policy needs to align with the type of business you do and the amount of customers you service. Small business valuations can help an insurance provider understand your insurance needs. Small businesses involved in more dangerous of working conditions, such as construction companies or electrical workers may require higher amounts of insurance. The business valuation gives them a better idea of the needs of the company.

To go public

Gaining IPO status is a goal among many medium sized businesses. When you trade publically, you are opening up your business to endless growth opportunities. There is a lengthy and complex process involved with going public. One of the most important steps is calculating and publishing the true value and evaluation of the business. You can determine the value of your business using these three approaches, by comparison to recent sales of similar businesses, based on the business? earning power and risk assessment, and based on the company?s assets. All of these factors are likely to be taken into account when attempting to go public.

There are many reasons that you may need to calculate an accurate business valuation. A few of the most common reasons include obtaining lending, purchasing an insurance policy on the business, selling the company, or going public in the IPO market. Ensure that you have the necessary documents and that you are using the right method of valuation for your business.