Commercial Real Estate Stronger Than Ever, But What is Your Business Worth?
After the widespread outsourcing of the 1990s, a new entrepreneurial class emerged in the American marketplace. There are currently more than 25 million small businesses, most of which are run by a single owner/operator. A small business is defined as having fewer than 500 employees, but competing with big box retailers online can be difficult. If your small business has been in operation longer than five years, you are part of the small percentage of new businesses that is able to gain a long-term foothold in your industry.
Small business owners often find themselves competing against large retailers, especially online. Search engine algorithms are designed to help people find local businesses that offer the products or services they are searching for, but customers are much more likely to click through on an established business’ link. Large retailers have more social media activity, much larger advertising budgets, and more authority according to the current patterns that govern search results. Trying to stand out in a competitive industry can be difficult, but outreach efforts and advertising campaigns can help make small businesses more visible.
Once you have established your business, you may want to look into business valuation. If you are planning to sell your business, you will need to have a figure that potential buyers can look at in order to make their decision. Although business valuation is not an exact science, you will need to start by assembling your financial records for at least the past five years. The economic assessment portion of a business valuation depends upon your financial status, but another component of the valuation process looks at the amount of business that you may do in the coming years. Your business’ valuation depends upon your assets but also upon projections of future success or failure.
Basically, a valuation market approach will look at similar businesses and use their metrics to estimate the potential future worth of your business. Similarly, real estate appraisers take the value of the homes in your neighborhood into account when they are calculating the value of yours: any valuation market approach needs to understand the zeitgeist of the market and must estimate the potential resale value of your business in the next decade. Financial records and small business valuation tools may not precisely predict your business’ worth, but it is still essential to provide clear documentation of your expansion and marketing efforts.
If you are in the market to buy a small business, it is important to make sure that the seller has a clear organizational schema for all of their financial assets. Spending the first fiscal quarter clearing up old bills and sorting out accounting information can hinder new expansion efforts, along with the hidden cost of old debts. The market for commercial real estate continues to expand, despite a higher percentage of remote workers than ever before: hotels, restaurants, and Laundromats continue to post impressive numbers on standard business valuation reports.
Another trend in the American real estate market is seller financing: studies consistently show that buyers are ready to purchase property and businesses for a higher price if the seller is willing to finance. The valuation market approach to establishing a sales price for a business does take urgency into account: there are markets where a delay in the sale of a business could be deleterious to a buyer’s finances. Business and property sales that are seller-financed can help avoid delays related to loan processing times.
We live in an era where we can advertise and market products and services around the world from the comfort of our own home offices. Too many small businesses focus their efforts on outreach and forget that they need a verifiable paper trail. There are software programs available to keep track of accounts payable and accounts receivable, and when you are ready to sell your business you may find that a valuation market approach allows you to set a higher price point with your seller.
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