What are Business Valuations?
Every business owner needs to know what his or her business is worth. The first question you need to answer is, “How do I determine how much my business worth?” If you’re left scratching your head, or fumbling with spreadsheets and general calculations, don’t worry. You’re not alone. A Certified Business Broker can help you with a business valuation so that you have a clear view of your businesses financial worth.
Let’s take a step back. A business valuation, to put it simply, is the process and set of procedures used to determine how much a business is worth. While that sounds easy enough, thorough preparation and attention to the details in this process is key to a proper valuation and a clearer set of expectations.
Challenges in Business Valuations
One of the challenges in business valuations is that business value means different things to different people. While a business owner sees its relationship with the local community being worth so much, an investor might not agree thus resulting in varying selling price and business value will have different valuations.
A second challenge in business valuation is the status of the economy at the time may effect what the business is worth.
And a third challenge to evaluating what a business is worth is what are the specific circumstances of the business sale. For example, a business that is being sold at auction, verses one that has a well planned sales and marketing strategy and has been showing stable, forecasted growth.
Three Business Valuation Approaches
There are three fundamental ways to measure what a business may be worth. Each one of these methods will yield different but beneficial results. The methods are:
- Asset Approach– This method views the business as a set of assets and liabilities that are used to create the picture of business value. This method is based on the economic principle of substitution addressing the question of how much it will cost to create a business just like this one.
- Market Approach– As the name would imply, this approach relies on signals from the market place to determine what a business is worth. This compares businesses like yours to your business to determine the worth. This method is a great way to determine fair market value, a monetary value likely to be exchanged in an arms-length transaction, when the buyer and seller act in their best interest. Market data is a great tool to support your asking price if the value of your business comes into question.
- Income Approach– Again as the name would imply, the purpose of having a business is to make money. Explaining to the potential buyers how buying your business will yield economic benefits after their investment of time, money, and effort is crucial in the negotiation process and can make or break the sale. Using capitalization and discounting allows you to establish the business value in the present.
Many business owners are good at what they do, in terms of growing their business, managing employees, and the day-to-day operations, but chances are, most owners have never sold a business. Part of being successful is learning when its best to do something yourself and when to hire an expert. With all the hard work and time invested in your business, for your final payoff, you should have a Certified Business Broker in your corner.
Cress V. Diglio, Florida Business Broker
Cress V. Diglio is a Certified Business Intermediary (CBI), a Merger & Acquisition Master Intermediary (M&AMI) and the past chairman of the International Business Brokers Association (IBBA).
Whether you are looking to buy a business, sell your business or merge with another business, Florida Business Broker Cress V. Diglio has the experience to assist you in all facets of the transaction. Call Cress today for complete transaction support and expertise, 888-984-4208, or visit https://floridacertifiedbusinessbroker.com.