What Every Seller Should Know About Business Valuation
Working day in and day out in your business, you probably assume you know everything there is to know about it, including how much your business is worth. However, a M&T Bank survey in 2022 found that 98% of business owners didn’t know the value of their business.
There are many reasons to know how much your business is worth. You may want to buy out a business partner. You also can use a valuation to help guide the strategic planning for your business. Most often, business owners need to know the value of their business when they’re ready to sell it.
Selling a business is no small matter. There’s a lot to know and a lot to keep track of. Having business brokers by your side long before you plan to sell your company can help you get to closing and get the most out of your business.
When you’re ready to sell, business brokers can help you find the right value for your business. Here’s what you should know about business valuation.
What Is a Business Valuation?
A business valuation is a process used to determine the total value of your company and its assets at a specific time. Through the process, independent appraisers or business brokers qualified to evaluate businesses will assess your business’s assets, cash flow, market position, future earning potential, and comparable businesses in your market.
The business valuation is a price you and a buyer might be able to agree on.
Knowing the worth of your business can help you negotiate the price you want to get when your company sells. It also can help you recognize what buyers might see as valuable or areas you can work on to increase the value of your company.
How Business Brokers Evaluate Your Business
Many approaches can be taken to valuing a company. Here are three main approaches business brokers may use to determine the worth of your company.
Income Approach
This approach determines your company’s worth by calculating the income your business will generate in the future and discounting it back to a present value. This method is useful when you’ve established stable and predictable earnings.
Market Approach
A market approach values your company based on prices of comparable businesses that have sold or the value of similarly situated companies.
Asset Approach
This valuation focuses on the net asset value of your business. With this method, you would subtract all liabilities from your total assets to determine your net asset value. The asset approach is typically used for companies that are underperforming.
To facilitate business brokers valuing your company, you must present profit and loss statements and balance sheets for the last three to five years, licenses, deeds, any tax filings and returns, an overview of your business, and your business plan.
Plan With Business Brokers
To attract the right buyers and arrive at closing with the maximum negotiated price you’re comfortable with, consider getting business brokers on board long before you plan to sell. Business brokers can help you understand business valuation and find value in your company that you might not have known existed.
