Small Business Owner: How To Value Your Small Business
by Martin Hansen
Without question, this is one of the most vexing questions we’re commonly asked. First, there are several different ways to value a business. And second, there is no perfect way to value a small business. In the end, if you are the seller, the business is worth whatever you are willing to accept for it; or, if you are the buyer, whatever you are willing to pay.
A solid place to begin is the now widely available Internet calculators that take specific business information and calculate a generalized valuation range for you to review. Get a valuation range now with our free valuation calculator.
Additionally, there are many websites that, for a fee, can provide you a more scientific market-based calculation based on the information you provide.
The following 3 steps below were sourced from an Inc.com article written by Curtis Kroeker (http://www.inc.com/curtis-kroeker/whats-your-asking-price.html)
1. Estimate the liquidation value of your business by assessing the value of its tangible assets
This works best for more capital-intensive businesses, but is a useful exercise for most small businesses.
2. Estimate the value of your business using an earnings multiple
Multiples are ratios of business value to key financial indicators, usually revenue and cash flow. Multiples vary according to business type, geography, and a wide host of other factors. As a result, business values typically range from one and four times annual cash flow.
3. Assemble the necessary financial statements to enable an income-based valuation.
Organize your financials:
Strong business valuations begin with the assembly of formal financial documents for the current year as well as the previous three years. Depending on your bandwidth and accounting skills, you may need a bookkeeper to help you prepare the…essential statements
For a more formal valuation, contact an experienced business valuation professional or quite possibly an experienced Business Broker familiar with the type of business you are valuing. For more information go to www.dealmaker360.com and good luck!