There are over 26 million business currently running in the United States, and of those, a good number are either just getting started or getting ready to sell. However, there’s more to selling a business than putting up a “For Sale” sign on the sidewalk out front.
Before selling a business, it’s important for owners to know the approximate value of their company. This needs to be determined in order for owners to ask a fair price, and for investors to offer the same. There are multiple ways to value a business, and here are the three most common.
Asset Approach Company Valuation
This method of business valuation determines the value of a company by taking all of its assets and adding them together. Asset business valuation methods are useful for accurate business purchase price allocation, an important element of structuring a business acquisition deal. This type of small business valuation is generally more suitable for owners who treat their business as an investment rather than an income stream.
Income-Based Company Valuation
The income methods, as the name implies, determine the business value based on its income producing capacity and risk. These types of business valuation services are best for owners who treat their business as a stream of income. This way, if there’s a gap in value, you can learn about it now so you can make the necessary adjustments to your business before selling.
Market Approach Company Valuation
These methods determine value of a business by comparing it to others in the same industry, of the same size, and within the same area. This approach is a good method for companies where numerous comparable transactions can be reviewed, such as some public companies in established industries or small businesses of similar type, size, and revenue in the same small region.
Business valuation services are important for all stages of a company’s life, from start to finish. However, it’s important to hire professional small business valuation services to get the most accurate estimation possible. With a seasoned professional and a business in good standing, these valuation tools can help find success and build better businesses.
