The two main financial statements you need for business valuation are the balance sheet and the income statement. Business valuation is ultimately an economic analysis exercise. The company financial information provides key inputs into the process. In order to do a proper job of valuing a small business, you should have three to five years of historical income statements and balance sheets available.
Determining the value of your business uses these three approaches:
Comparison to recent sales of similar businesses,
Earning power and risk assessment
The company?s assets.
It may be surprising that valuation results are influenced by your need for business valuation, but business value isn’t absolute. It is a process of measuring the worth of the business, which depends on two key elements: how you measure business value and under what circumstances. These elements are known as the standard of value and the premise of value in formal terms.
You need updated small business valuation tools, which use a comparables database to help your business obtain an accurate and reliable estimate of value as quickly as possible. Reliable data must come from unbiased sources.
Banker valuation was created to provide national banks, community banks, credit unions and other service providers with accurate internal small business valuation tools and the most reliable information possible on comparable transactions for small businesses.
Position yourselves as experts with small business valuation tools. Transaction data has been gathered from local, regional, and national, lenders across the United States. This data encompasses major industry classifications and includes specialized industries such as Dental Practices, Veterinary Practices, Chiropractors, Accounting Practices, and Specific Franchises.
The Small business valuation tool uses the following approaches:
The Income Approach uses a discounted future cash flow method using a build up discount rate specific to cash flow. The discount rate is based on risk variables that tend to have the most impact on values of small businesses.
The Asset Approach is especially for asset intensive businesses and holding companies. It is typically calculated as adjusted assets less adjusted liabilities.
The Market Approach uses the Banker Valuation database, to search for specific comparable transactions based on revenue or profit size, keywords, and various other variables. The market approach uses a price to revenue calculations. This method can be weighted when good comparable transactions are available.
Choose a full service business valuation firm that specializes in the valuation of small to mid-market businesses for the purpose of acquisitions, mergers, lending, estate planning, divorce and litigation support. Also, be sure that the service has more than 50 years of experience in the areas of business valuation, investment banking, and corporate development.