Have You Failed in a Past Business Attempt?

Small business valuation multiples by industry

Hindsight is 20/20, but in the case of your mistaken business investment, you needed more than a better vision, you needed a better product, a better location, and a better pricing system. In fact, the decision to go into your business adventure without a complete understanding of the available business valuation tools was a very unwise decision.
Fortunately, you have been able to salvage some assets from this failed attempt at your first business adventure, and you hope to take what you have learned and make a new start before long. Company valuations are never an exact science, but with a better understanding of the small business valuation resources both new and unexperienced investors can make more informed decisions.
Business Valuation Tools Serve as an Informative Way to Approach Investing in a New Business Opportunity
Whether you are in the process of buying or selling a business, understanding the resources that are available to you can help you find a more accurate way to understand the value of a business. The business valuation process is largely an exercise in economic analysis. For this reason it should come as no surprise that the company financial information provides key inputs into the entire process.
In almost all valuation methods, the two main financial statements needed for business appraisals are the balance sheet and the income statement. In fact, to achieve a proper job of valuing a small business, it is important to have three to five years of historic income statements and balance sheets available. Using this information investors and sellers can start the process of determining both asking and selling prices.
Other key key starting points in establishing a business worth include:

  • Determining why you need business valuation.
  • Assembling all the required information.

With these two points determined, the investor or buyer can then find an institution or a computer program that can help measure the business valuation. Typically, the evaluation process then follows one of three approaches:

  • Comparison made to recent sales of similar businesses. Sometimes the similarity is found in number of employees, locations, products or services sold, or a combination of these and other factors.
  • Determinations based on the earning power and risk assessment of a business.
  • Determinations based on the assets of the company.


Determining the Business Valuation of a Company Can be Complicated


If you’re buying a business, you’ll need to figure out the value of it. Whether you’re doing healthcare compensation valuations or looking at the price of inventory in a closed shop, the value of your business is impacted by a number of factors.

The business evaluation process can be complicated, so it is important that you work with professionals as you go through it. A lawyer and an accountant can help you with any questions you have. As you figure out how to properly value a company, you’ll need to use different formulas for different aspects. If you do so correctly, you’ll get an accurate number and know how much to pay for the business.

How do you value a private company? While it might seem like something that could be changed with emotions, there is actually a business appraisal formula that you follow. This gives you an objective number. From there, emotion could come into play as you negotiate the purchase. But when it comes to the actual monetary value of the business, there will be a single correct answer.

Business appraisal valuation

You still remember the day you decided to buy your current business. You had stopped by your favorite gift boutique only to discover that it was closed. In the middle of the day. On a Wednesday.
At first, you were just going to return to your car and try to find the gift you were looking for somewhere else, but something made you go back to the front door of the closed store. After looking inside, you saw the owner near the back of the store. A couple of quick taps on the window helped you catch her attention. When she realized it was you she came running to the front door and let you in. She locked the door again once you were inside and explained the problem. With two small children at home the business owner no longer had the energy or enthusiasm to keep her gift boutique going. When you had tapped on the front door she was actually in back working on an inventory list. She had decided to sell and stay home with her children.

And almost as quickly as she could tell you her story, you got the idea that you would be the buyer. You had owned another business before, but had sold it when your own daughter was born. Now that your daughter had her driver’s license and was in high school you again had the time to devote to being a business owner again. And what better opportunity than a gift boutique where you loved to shop any way?
It took a few months to finalize the purchase, but before you knew it you were the new owner of your favorite shopping spot. Luckily, you were able to get two separate business valuations that made sense and that were acceptable to the previous owner.
The Business Valuation Process Helps Investors Understand the Value of a Company

Buying and selling a business is very different from buying and selling a home. The purchase of a business, for example, requires a business valuation report. And while some factors that are used to determine the value of a business may seem cut and dry, other factors can take a little longer to determine.
In the case of an already established gift boutique, for instance, a business valuation analysis can be tricky. While it might be tempting to simply look at a comparables valuation, this analysis may not tell the whole story. What if the gift boutique you are buying has an enormous inventory that has already been paid for by the current owner? What if the location of that gift boutique is in a strip mall that has tripled in size in the last five years? What if valuation income approach is misleading because the previous owner was often closed when her customers thought she would be open?
The list of questions could go on and on. And, every question could shed a little different light on what the value of the business should or could be.
Owning a business can mean financial opportunity. It can also, however, mean financial ruin if you overpay for the purchase. Finding the most reliable business valuation from the most reliable firm can help you make sure that you pay the correct price for any business that you purchase.
Because business valuation is never an absolute number, it is important to consult with a firm that is known for their experience and reliability.