Starting a small business is no easy task; it can be hard for new entrepreneurs to take on the challenges of creating a business on their own, taking existing competition to task and staying above water for long enough to be eligible for outside help in the form of investors, loans and lines of credit. In fact, this can be one of the hardest dilemmas that entrepreneurs face: many small business owners are told that they need several years of documentation in order to receive any sort of assistance, while their first several years of business is probably when they would need the help the most.
Luckily for you, it seems that that difficult dilemma is just a memory now and things are looking up. This is also the period where small business owners are usually required to provide (and begin to wonder) what their company’s worth is. While many proficient entrepreneurs turn to a good financial team and business valuation tools, many beginners are left with more questions than they have answers. Here Are Several Steps to Help Your Business Determine Its Worth:
- Where Do I Start? This can be the hardest part of finding the right small business valuation services: most small business owners don’t even know where to turn for help! In reality, there are 2 major keys to getting started in the right direction for small business valuation:
- Determining why you need your business valuated in the first place, and
- Collecting all of the documentation required to proceed.
First, let’s take a closer look at what these two things mean:
- Why Do I Need to Ask Myself Why I Need Business Valuation Tools? This might seem like the hardest thing to wrap your head around, but it makes a little more sense after understanding that business value is not absolute or concrete. Rather, it is an ever-changing and evolving evaluation of your company’s worth (which can vary based on the reason why you are looking to get your business valued in the first place). 2 major factors to consider here are:
- The Standard of Value (how you measure your business value) and,
- The Premise of Value (under what circumstances you measure your business value)
After asking yourself these questions, you need your paperwork to be on point in order to get what you want out of the process.
- What Paperwork Do I Need to Proceed With Business Valuation? Generally speaking, there are 2 documents which are most important in determining your company’s worth:
- Income Statement
- Balance Sheet
Please Note: In general, most business valuation experts require 3-5 years of income statements and balance sheets before giving you an accurate valuation. Please make sure all of your records are organized neatly and are up to date, as this will prove to be most beneficial for both your small business and your business valuation company.
Also Note: If you don’t have that many years under your belt, have no fear: there are other ways to value your business, including comparisons to the sales of business similar to your in nature and valuating your company’s assets.
After working on both of these major keys, the use of business valuation tools can be a whole lot easier for entrepreneurs looking to evolve and expand their businesses. Also remember that which company you use for your business valuation is an important factor to consider. Another fact to consider is that along with the rise of DIY software aiming to help entrepreneurs run successful businesses without too much outside help, there is also some great business valuation software available on the market for those who are more prepared to handle the task on their own. Good luck with growing your business!
Did you VALUE the information in this article? Has the use of business valuation tools helped your small business thrive? Do you have any extra tips, tricks or life-lessons to contribute? Please leave your thoughts and stories in the comments section below!