Entrepreneurs typically dream pretty big dreams. They may imagine starting a new mobile cell phone repair business that can serve their customers at home or at work. They may dream of offering a well made line of clothing items that carry to women of a variety of sizes. They may even dream of starting a business that helps other entrepreneurs start their own businesses. At the very beginning, however, many big dreamers need to have a really good understanding of the value of the business that they want to start or the business that they want to purchase.
And while one group of business people are trying to figure out how much they should invest or spend on a new business, another group is hoping to determine how much they should charge for an established business that they want to sell. For these sellers, it is very important to make sure that they correctly place a value on the property they are offering on the market.
What Is My Business Worth According to the Market Valuation Approach?
Small business valuation resources include financial advisers and small business valuation software programs. In the market approach, the value if a business is determined by comparing it to other similar businesses. And while some businesses can easily find other businesses on the market for these comparisons, other more unique businesses have to look for other ways to make these comparisons.
For example, some businesses cannot find a business that sells a similar product or offers a similar service so they look for other similarities that they can use for the market valuation numbers. For instance, these unique businesses could make market comparisons to other businesses that have the same number of employees. They could also make market comparisons to businesses that are located in the same parts of a city or have the same kind of traffic patterns in front of their offices.
What Is My Business Worth According to the Income Valuation Approach?
The income valuation approach is a little more black and while. By understanding how much different businesses with similar incomes have sold for can be a very good indicator. Business valuation is for the most part an economic analysis exercise. It should not come as no surprise, then, that the company financial information provides key inputs into the process. The two main financial statements needed for business valuation are the income statement and the balance sheet. To provide the best job of valuing a small business, experts indicate that the business should have three to five years of historic income statements, as well as any balance sheets that are available.
Even though the income valuation approach may seem more black and white, it is still very important that the incomes that are compared are from the right kinds of comparable businesses.
What Is My Business Worth According to the Asset Valuation Approach?
Taking inventory. That is the most basic explanation of what the asset valuation approach involves. Taking note of everything that is an asset to a company and comparing that total to other similar businesses that have sold can be a valuable indicator. The assets not only include inventory, but they also include the furniture, software, computers, and other fixtures in the store.
Interestingly enough, the two key starting points toward establishing a business’ worth include determining the business valuation is needed and assembling all the required information. If, for instance, a business owner is getting ready to sell, this asset valuation may be slightly different than if the owner were simply getting ready to expand or refinance.
Selling a Business Must Include an Accurate Valuation of the Company You Are Considering
When you start to ask yourself what what is my business worth it is time to consult a variety of resources. From business valuation calculation software to bankers who are experienced in estimating the valuation of a company, a number of resources should be consulted before deciding to sell a business. Asking too high of a price can mean receiving absolutely no offers. Asking too little, however, can mean that the business owner is not gong to be compensated for years of work and dedication.
