Business Valuation: Introduction and Its Purpose

Business valuation is considered as one of the most significant steps that one has to consider if you are planning on selling your business. some entrepreneurs who are willing to sell and / or buy these businesses may seek help from a business broker, lawyer or any other individual who can help them go through the entire process of gauging the total amount of your business or company.

Simply said, business valuation is the entire method which includes determining the right market value of your business overall. The current sales and performance of company may play an essential role in determining the business’ value, while the market or prospective customers including the products may also play an essential role.

You have to bear in mind that when it comes to acquisition or shares of business mostly depends on the right valuation methodology that you are about to use. Evaluating your business doesn’t happen overnight. There are different things that you have to work on, and this must be done carefully and thoroughly. Just remember that those parties / businesses / individuals involved have to pay for 25% more than what a business is actually worth. This means that if you have the wrong valuation of your business, you might get the entire computation wrong.

Valuing your business before even considering selling it is very important. Although most buyers will try to negotiate with the amount that you have offered in the market, always remember that your business is worth than what you usually think. These potential buyers will usually compare your business’ worth to competitive businesses which are for sale. But, if you have gone through the right business valuation methodologies, you can surely say something about your business and give your potential buyers some points why your business costs more than other competitive businesses that they have found in the market.

Business valuation is done in different techniques. One of the most common techniques includes asset approach. Basically, the business owner will compute the total amount of assets that the particular company has. This is one of the most common ways that are being used by those people who are trying to sell their business. However, this doesn’t work for everybody.

There are some businesses on the other hand with smaller amounts of assets, but their business has been doing well in terms of cash flow – and this technique is called the Cash Flow Analysis. With this method, the seller recasts the company’s latest annual profit and loss statement for the entire year.

This is to compute whether the business still has the potential to generate revenues and income, and see if it’s worth the price. Businesses which are going down usually have smaller prices than businesses which are still doing well in terms of the income profit and loss statement.

For businessmen, as long as you know the right methods of business valuation, use the right approach for setting the price of your business and understand the business dynamics in this field, it is more likely that you’ll end up a quick sale with a very interested and potential buyer.


28 August 2012