Factors Affecting Small Business Valuation
You need to know how much your small business is worth for many reasons. There are beneficial financial reasons and powerful planning reasons to find out how much your business is worth. You don’t really know who you are trading with or what their motives are or if they are trustworthy until you have completed some analysis.
There are some quick and easy ways to get quotes for your company without a full valuation analysis, and you should always start there.
What is the process of a business valuation analysis?
Business valuation is a comprehensive process to determine how much an owner should receive for a business that is being sold or transferred. Small businesses are especially valued based on the income and cash flows they can provide after financial debt is paid off.
A business valuation involves assessments of the company's assets including receivables, accounts, equipment, inventory, intellectual property, tangible and intangible, and how these might be valued.
C. Value Drivers: ___________
Different companies are valued based on different criteria. A startup might be valued on the idea or the entrepreneurs behind it. A company that has been in business for a number of years might be valued on its cash flows … or how much cash is projected to come into the business.
The fair market value of your business can be a number of influencing factors. One of those factors is geographic. One state may have different values than the state next to it.
You can boost your business’s value by finding out what that in the previous year and research the potential value in the geographic area you plan on selling in. If you plan on moving to another state, use the state’s highest and lowest values to boost your own.
Same is true for your industry. If it is worth more one year than the other, the value of your business can be affected by that change.
Another factor in the value of your business is your age. Usually, the older the business the higher the value. If your business is a start up, then your value will be much lower than if you had been in business for several years.
Size factors in to your valuation, too. The more employees you have and more products you have, the more your business will be worth. If you want to increase your value, become bigger in size; however, if you want to sell it and get a higher valuation, you need to be smaller.
How to Get the Best Possible Price for Your Small Business
Selling a business is often one of the most stressful and anxiety-inducing experiences that a business owner and their family face in their entire lives. The emotions involved -– surprise, disappointment, delight, joy, relief, and many more – all have a tremendous effect on the outcome of the transaction. This is why it’s so important to be well prepared before you begin and to have a professional third party business broker whose first and foremost interest is your best interest.
But, not just any business broker will do. None of your local office supply representatives or real estate brokers is well equipped to invest in your future success. We specialize in business brokerage and most of our business brokerage clients require comprehensive solutions that include:
- Comprehensive marketing and advertising
- Comprehensive marketing and advertising Inside access to extensive pre-qualified buyer database
- Hundreds of millions in pre-qualified buyers and sellers you have access to
- Direct access to a seasoned business broker who will act in your best interest
If you’re thinking of selling your business, use the following advice as you consider your options for representation and assist at every step in the marketing process.
Quote comps to get a fair share price.
Is this a Good Time to Sell Out?
If you’re planning to sell your business in the next few years, here’s some essential advice from some of the top advisors in the industry, each with their own unique perspectives.