They say the best things in life you just can’t put a price on. You might feel like your small business is one of the best things in life, but you really should put a price on it. There are a variety of reason you might need small business valuation software to appraise your business. Your small business valuation software will help you determine the value of your business when you are offering equity in exchange for capital to grow your business. You’d use small business valuation software to figure out the earning power of your business, if you were selling the whole operation to another person who would continue running it. If you decided to liquidate your business and leave the industry, your small business valuation software would help you figure out the value of your assets to satisfy your creditors. These are just a few examples of many, many reasons that you would need a business valuation appraisal at some point in the life of your business dealings.
So what exactly is small business valuation software, and when and how do you use it and for what reasons? If you have all the above questions about seeking a business valuation, and a hundred more, stay tuned for our simple guide, below.
FAQs Regarding Business Valuations
- What does my business valuation really tell me?
As we mentioned above, the purpose of your business valuation determines the methods used to calculate it, and depending on the business valuation method used to calculate your business valuation, you could arrive at an extremely wide range of valuations.
For example, let’s say you’re applying for a line of credit to place a purchase order for your business. You’ve never placed a purchase order before, your business has no history that you could show to your lender that would confirm that you’re good for the money you’re asking for. Since you’re a startup, perhaps you have far more debt than assets, so the physical dollar amount that your business is worth might not give your lender much to go on. In this case, you might be able to use a business valuation that looks at the value of several other companies of similar size in your industry.
Meanwhile, let’s say that you are filing your income taxes. The less income you make, the lower your tax burden is. In this case, you might want to use an asset approach to your business valuation, which calculates your income after the depreciation or amortization of your assets. Maybe your cupcake stand made $1 million, but after you subtract one year of the value of the industrial mixer you purchased, your tax burden is far lower. As you can imagine, the story that your valuation tells is far different in the first scenario than the second.
- How long does it take to get a business appraised?
A good business appraisal requires in-depth understanding of your business and your industry. This obviously takes some time to understand. However, the exact time frame from start to finish that your business appraisal requires depends greatly on the circumstances of your appraisal, the size of your business, the organization of your paperwork, the ability of your appraiser to find other similar businesses of your size, and so on. In other words, the answer to this question is that there really isn’t an answer.
While we’re on the subject, you’re probably going to ask how much an appraisal costs next, right? The same answer applies. If you get a flat rate on your appraisal before the business valuation consultant really understands the depth of your valuation, you might not be getting a good deal. Their flat rate would have to be on the high-end to ensure they don’t lose money on the labor-intensive valuations, or they’d lose business. It might be a good idea to keep looking.
- How do I find a good business valuation company?
The best way to find a business valuation provider you can trust is by word of mouth. Ask other similarly-sized businesses in your industry who they used, or look online. Finding a company you can trust will make the entire process far easier.
Do you have any other questions? Please share below!