To Sell Your Business, You Must First Set a Value

Valuation asset approach

For many business owners, their only exit strategy is a sale of the company, either because they have no heirs or they don’t have employees who can take over the business. A business owner getting out of the business is going to want to get as much as possible for the business, which is why it is important to employ business evaluation services to come up with a business valuation that is at the high end of what the market will pay.

There are more than 26 million businesses in the U.S., and the vast majority of those are small businesses. About 21 million of those businesses have no employees at all, and 99.7 percent have fewer than 500 employees. With very tiny businesses, it can be hard to set a value, because much of the intangible part of the business can be tied up with the owner.

When you decide you want to sell your business, you need to determine whether and why you need business evaluation services and then gather the information that will be necessary to value your business, which usually includes, at a minimum, your income statement and your balance sheet. Potential buyers may want to see three to five years worth of these documents, so it is important that you keep good records.

There are three main ways to value a business, and which you use can be dependent on the size of your business and the industry you are in. You can value your business based solely on assets, which can be a good way to value capital-intensive businesses such as manufacturers. Another common way to value your business for sale is to compare business comps of recent sales of similar businesses. This is similar to the way home sellers set prices. A third way to value your business is to look at its earnings potential, which can be a good method of business appraisal valuation if you are in a fast-growing industry.
Whatever method you choose to value your business, you want to make sure you are using an experienced company for your business evaluation services. Such a company will use the right business valuation tools to make sure you get an accurate estimate of your company’s worth. Keep in mind, though, that your business valuation is essentially an estimate of worth at a particular time, and your actual sale price may be more or less depending on market conditions.

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