How to Calculate an Accurate Business Valuation Report
You have built your business where you want it to be and you have decided to sell it and move on. You have poured so much of your time and attention into this business and you need to set a fair selling price to sell it for. Where do you come up with that price? What types of things matter when setting this selling price? Do your effort and your time compute into the business valuation report? What about all of the inventory and the supplies that you will be leaving behind to the buyer, do you need to calculate that into the selling price? Figuring out the price to sell a business for can be a difficult task, but it is not only possible, it is also necessary to gain an interested and able buyer to the business.
Selling a business is very similar to that of selling a home. A home?s value is often first calculated based on the amenities and the features that the home has, including the size of the home, how many bedrooms and bathrooms and if the basement is finished or not. The age of the home and the shape of the home will also be taken into consideration. Then, the home will be compared to similar homes nearby in the same neighborhood. In the case of selling a business, the business will be compared to other similar businesses in the vicinity of it and what they have recently sold for.
The income of the business, the size of it and the location will all be taken into account. The two key starting points toward establishing your business worth are determining why you need business valuation and assembling all of the required information. Small business comps will be a company valuation tool to compare your business to. The comps valuation is often completed by a company that specializes in business appraisal services.
It may seem surprising at first that the valuation model results are influenced by your need for a business valuation, but business value is not absolute. It is a process of measuring business worth, which depends on two key elements, how you measure business value and under what circumstances. In formal terms, these elements are known as the standard of value and the premise of value. Basically, the business appraisal valuation will also depend on your reason for selling your business.
Obviously if you are selling because you are disinterested and are ready to move on, but your company is making money you will warrant a higher business valuation reports, whereas if you are consistently losing money and want out quickly, you will warrant a much lower business valuation report, charging less to interested buyers.
It is important to gather all of the needed information before requesting a business valuation report. Without all of the proper paperwork, the valuation will not be entirely accurate and it will affect the sales process. Business valuation is largely an economic analysis exercise. Not surprisingly, the company financial information provides key inputs into the process. The two main financial statements you need for business valuation are the income statement and the balance sheet. To do a proper job of valuing a small business, you should have 3 to 5 years of historic income statements and balance sheets available.
A lot goes into the computing of the value of a small business. In some ways, it is similar to selling a home, requiring comps and an evaluation of the features and the size of the business. The business valuation report will depend on a variety of factors, with the reason for the valuation and the reason for selling the business as being the most important two factors. All of the necessary paperwork is required to obtain an accurate valuation report.
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