Small business valuation methods

If you own your own business, chances are good that you will someday need to know how valuable it is in the greater market, either to entice investors in order to grow your business or to put your company up for sale. When you’ve decided on one of those options, your first step should be to procure a report summarizing your company’s overall worth, otherwise known as a business valuation. Once you have developed a clear idea about why you need this report, it’s time to experiment with business valuation software or consult experts at a business valuation company. Either way, you’ll be provided with a breakdown of the materials you’ll need to provide for a successful valuation.

Since a business valuation is essentially an economic analysis exercise, your company’s financial information is the most important input in the valuation formula. Ideally, you should provide three to five years’ worth of your income statements and balance sheets for an expert to assess. These numbers will generally be interpreted in one of three ways: in comparison to other recent business sales in your area, based solely on your company’s assets, or based on your company’s earning power and risk assessment. No matter which business valuation tool is ultimately chosen, you will ultimately come out with a much better idea of your company’s current market value.

Whether you use software for a do-it-yourself approach to business valuation tools, or consult the experts at a business valuation company who are already experienced in this process, a business valuation is one of the most useful tools you can gather when exploring the options regarding your company’s future. Investors are attracted to companies with demonstrable market value, for example, and a business valuation is a clear indication of a company’s overall worth. Alternatively, if you are ready to sell your company, a reliable valuation becomes your biggest bargaining chip to make sure you get the most out of the sale. Small business owners and the owners of major corporations alike benefit daily from knowing the current market value of their companies.