Have you recently started or expanded your small business? Wondering how much it’s worth? You aren’t alone! In the past, appraising a small business was much more of an art than it is today because there weren’t many objective ways to quantify the value of an enterprise. Today, however, there are actually quite a few objective methods that can help you estimate How Do You Value A Business with more precision than ever before – but only if you have the right information and tools at your disposal.
Step 1 - Determine your business value
The first step to determining how much your business might be worth if you decide to sell it someday is estimating its value. To do that, take into account what buyers are willing to pay for businesses like yours. You can get a sense of that by looking at a list of companies in your industry, seeing what they’re selling for, and using your company’s earnings to back into an estimated value per share.
Step 2 - Assess potential buyers
Do you want to sell to a corporation or another business, an individual, or both? If you’re selling your business on your own without a broker, knowing your buyer helps determine how you approach and market to them. When selling a business on its own, it’s easier for buyers with similar businesses to understand and value yours—and easier for them to see how they can benefit from making an offer.
Sellers may not know their potential buyers well enough to predict which one will be the best fit, so they should ask potential buyers what type of company would be interested in their company.
Step 3 - Use an appraisal service
An appraisal will allow you to define in advance how much your business is worth and set a price that reflects its value. There are many appraisal services out there, ranging from free to paid. Be sure to choose one with a good reputation and hire someone with knowledge of your industry so they can give you an accurate estimate.
It's also a good idea to have the appraisal reviewed by another professional before finalizing the sale. Once you've decided on a price, put together all the documents needed for the sale: bank statements, tax returns, financial records, etc. These documents show the current financial status of your company and will help buyers make their decision faster.
Conclusion
What’s It All Worth? In order to How Do You Value A Business, it’s essential to have as much information about it as possible. The aforementioned valuation methods are only relevant for businesses that are operating at a profit; if you’re not making money yet, then equity values and multiples don’t apply.
What matters more when you start out—and what should affect your valuation decision in the beginning—is your company’s expected financial performance. You need to know how many customers you can serve, how much they'll pay, and what costs will be involved. You'll also need to know the type of competition you face and how vulnerable your business is to technological change.
Source: How Much is Your Business Worth?
