If you’ve watched any of the popular investment television shows, you know that the valuation you place on your business can make or break a deal. A business valuation can be very subjective, in part because there are multiple ways you can value a business. Utilizing business valuation services can help you accomplish your goal. However, it is important to understand the process.
Additionally, the factors that may come into play on valuation aren’t always easy to measure. For example, if your business is offering a product or service that is entirely new. Something that you believe will open up a new industry; you aren’t going to have other business to use as a comparison. You’ll have to look at your own sales growth and the market.
Business valuation is also a valuable negotiating point in business deals when discussing buyouts, investments, and mergers. You’ll want to pump up the valuation of your business to get the most for your business, but your buyers or investors will want to downplay the valuation of your business to get the best deal. This is one of the reasons using business valuation services can be invaluable. They will help you to get an accurate and fair valuation, so you don’t accidentally undersell your business.
When you sit down to determine the worth of your business, there are two things you need to start with. First is why you need a business valuation. What are you trying to accomplish by assigning a value to your business. The Second thing is all the appropriate information. To assign any value, you are going to need company financials.
The two most important financial statements you will need are your income statements and balance sheet. The best case scenario is if you have these reports for the last three to five years because this will allow you to examine your overall growth. This is specifically something business valuation services can help with. A business valuation company can go over your records with you and explain what information they used and why.
There are three common ways to determine your company’s value. The first is through a comparison to recent sales from similar businesses. While this is a sure fire way, it can provide a value within the industry, and it can allow you to make projects on sales assuming your product or service is comparable in quality and price. There are, of course, marketing and other factors that may impact actual sales.
The second way is to base the value on the business’ earning potential. This is a commonly used method, especially with new entrepreneurs. The problem with this method is that it is the most subjective. You may believe your company has massive earning potential when in reality, you have a regional niche businesses, and there will be caps on your potential.
Going back to the popular investment shows you?ve probably watched, earning potential is one fo the most common valuation methods used by the entrepreneurs trying to get an investment, and it is one of the most argued methods from the investors. The key to using this method is having solid facts to back up the claim of earning potential. Simply looking at the market and assuming you can get a percentage of the share is inadequate.
Finally, the third method is to base the valuation on the company’s assets. This would include all assets; money in the bank, property, equipment, vehicles, etc. This method of valuation won?t take sales or potential into account. There are advantages and disadvantages to each method. The underlying true that all business valuation experts can explain is that there is no sure fire method, and the value of a business can change quickly.
This whole process is dependent on two factors: how you decide to measure the value and under what circumstances you measure the value. In business, these two elements are called the standard of value and premise of value. When determining worth, one of the best thing you can do is use business valuation services to help. Placing a value on your business can greatly impact a lot of important negotiations and decisions.