3 Methods For Effective Small Business Valuations

Business comps

Are you curious as to how much your business is worth? There are several methods used for small business valuations and it?s important to have a professional take care of the particulars. Business valuation experts will know the best route to take in order to effectively determine the value of your business and will assist you in located the correct documents needed for a successful valuation. If you?re interested in small business valuations, read on to learn more about the methods that are available to you.

Small business valuations are used as an economic analysis exercise for many business owners, giving them an idea of where their company stands financially. There are three effective methods for determining the value of your company ? comparison to similar businesses, analyzing your company?s earnings and determining what your assets are worth. It can be difficult to know where to start, so leave it to the professionals and they?ll help you analyze the necessary data.

Once you hire a business evaluations services expert, the first thing that they?ll do is determine the reason for the business valuation and where all the required information is located. Necessary documents for small business valuations include the company?s income statement and the balance sheet from the last three to five years.

So, what methods are available for successful small business valuations? We?ve compiled a list of the top three strategies that your business valuation appraiser may suggest:

  • Market-Based Business Valuation: As one of the most popular methods for small business valuations, this process is largely based off the market value of similar businesses. Appraisers will use business valuation software to look at comparable sales and merger activity to determine what your company?s overall value is.
  • Asset-Based Business Valuation: Instead of basing the small business valuation calculator off of the market value of your business, the appraiser will look at the hard assets that your business has. This includes delving into the balance sheets to determine your book value and analyzing the company?s depreciation of assets.
  • Historical Earnings Business Valuation: This process is slightly different from the asset-based method in that it looks at your company?s ability to make a profit. Three of the main areas focused on here are the company?s ability to pay off debts, cash flow and gross income. Even though the numbers can be highly unpredictable, the results will provide a reliable business valuation analysis that owners can use.

Keep in mind that while small business valuations are not absolute, the results will depend largely on why you wanted the business valuation in the first place. The key elements in play here are standard of value – how you as a business owner measure business value – and premise of value – what circumstances initiated the business valuation process.

Have you recently had a business valuation done? Share your experience in the comments below.