The business world has an ever-changing landscape. When it comes to the point when a business is up for sale, the owner needs to face a lot of questions and make important decisions. One of these is coming up with the price for the business.
It is important to know the value of your company so that you will arrive at the most suitable valuation for your business. Here’s where the services of corporate valuation experts come in. How much you value your business can vary widely depending on the type of method you use. You need to learn some basic information about small business valuation to be able to sell your company at a fair price.
Valuation Methods for Small Businesses
Most methods of valuation include the company’s financial history as well as its cash projection. These will help buyers determine whether they will be making a good investment by purchasing your business. There are three basic methods used for valuation.
Asset-Based Method
Using this method, you can calculate the value of your business by looking into the assets and liabilities. This allows owners to look at the small aspects that make up the business. Some of these small parts that add value to the company are the assets, while the other parts that add debts are the liabilities.
To get a proper valuation of the business through this method, you must subtract the liabilities from the assets. With this, you can come up with the book value of the business, which is the lowest value that you would be willing to sell your business for. The asset-based method is the best method for businesses that need to be sold quickly.
Market Value Method
Using this method will compare the business with similar companies that were already sold. It means that the value of the business will rely upon the market and the comparable business prices. For instance, your business is a salon, and salons in your area are sold for $70,000 on average, then your business can be sold for this price as well.
Income Value Method
This method looks into the financial history of a business. This is done by presenting the books of the business to potential buyers to show that it is a low-risk and profitable investment. In some cases, buyers need to take on a loan to pay for the sale of the business. By showing the buyer that the business can generate profits to pay off the loan and operate smoothly will reflect that it is a low-risk investment to take.
The value of a business is flexible, as buyers have their own views on how these businesses are valued. You can improve your valuation, but it can take some time as well as careful planning. Be sure to keep your business records and financial statements intact. These books will help determine the potential risks and profits that buyers will face when they purchase your business. It is also a good idea to known your business valuation so that you can make the most out of this sale.
