When selling your business, one of the first steps to take is to find out its actual value. To uncover this, a process and a set of procedures are used to determine business valuation. Many companies located in Minneapolis provide this service and know the preparation that needs to be done to ensure you receive an adequate amount for the business you are selling.
Factors in Business Valuation
As the value of a business can mean different things to different people, there is no universal way to establish what a business is worth.
For example, as the business owner, you may look at intangible assets such as your connection to the community adding to the value of your business. An investor, on the other hand, may feel that the income of your business over time better defines what your business is worth. Economic factors also play a role in determining the value of a business in that when there are fewer jobs, there are more business buyers in the market, resulting in increased competition and higher selling prices for business.
Business Valuation Approaches
There are three ways to measure what your business is worth. The asset approach tabulates the market value of the assets and liabilities of your business. The difference is the business value. This approach is also sometimes referred to as the cost-based method, as it estimates the value of your business as the total of the costs required to create another business of equal economic function.
The market approach establishes the value of your business in comparison to historic sales involving similar businesses. Chances are there are other businesses in the market that do similar activities as your business. If you are looking to sell your business, you will look around the market to see what businesses similar to yours are selling for. The “fair market value” of your business is a price that buyers will be willing to pay and sellers be willing to accept.
Finally, the income approach establishes the value of a business based on your ability to make money! The key objective of the income based methods is to determine the value of the business as a function of its economic benefit.
Professional appraisals use the asset, income, and market approaches to calculating the business value for a reason. Each situation is different, so the method selected for your business may be different from that of another.
