Business Valuation How It Works, And How It Affects You

Company valuation services

Valuing a small business is a difficult task, both practically and on some levels emotionally. Small business owners become emotionally involved with their businesses, especially when these businesses involve entrepreneurship. There are many contributing factors to a small business’s value, which can make the task of valuing it a weighty one practically as well. The fact is that if you are a small business owner, it is unlikely that your personal area of expertise involves the company valuation process. If you are wondering about small business valuations, it is extremely important that you turn to an outside party to have it done — namely, a business valuation firm. There are several reasons why a business valuation firm should be trusted to handle this task, rather than you taking care of it “in house”. For one thing, a business valuation firm is, an outside party, unbiased. They have nothing to gain from your company’s valuation, be it high or low. They’re also much more likely to give accurate results simply because this is their area of expertise. Finally, an impartial party valuating your company is an important factor for any potential buyers or investors. A business valuation firm proves that you are not pulling numbers out of thin air — you have proof to back your statements up. With that being said, let’s look into small business valuation services and how they can help you.

Why Are You Having Your Business Valuated?

This question is more important than you might initially think. By determining why you need a business valuation, you are taking one of the first steps in the process. There are many reasons why small business owners may want or need to have their company valuated. They may be in the process of selling their company — and any potential buyers will want to know the company’s real worth before putting their money down. The same goes for potential investors. It’s difficult to get anyone to invest in your company without knowing its actual worth. Valuating your company can also help you make the next move in its lifetime. If you don’t know whether or not to move forward with your business, having it valuated can help you make that decision. If a business is not performing as you expected, it may be time to call it a day — as difficult as this can be to recognize. While personal feelings can get in the way of business decisions, numbers simply don’t lie.

What Do I Need Before Having My Business Valuated?

Before a firm gets to work on valuating your business, you need to assemble the proper information — along with identifying why your business needs to be valuated, this is one of the key steps of moving forward in a business valuation. As business valuation is an economic exercise, you will need a certain level of financial information available. There are two main pieces of information you’ll need — an income statement and a balance sheet. To get the most accurate valuation possible, these income statements and balance sheets should date back at least three to five years.

How Does The Business Valuation Process Work?

When approaching business valuation, there are several different methods for you to choose from. These methods include through comparing the recent sales of similar small businesses to those of your own; by basing the valuation off of the business’s earning power and risk assessment; and by basing it off the company’s assets. Many are surprised by the fact that your valuation results can be influenced by your need for a valuation. However, business value isn’t absolute. The process depends on two key elements: how you measure the value of your business, and under what circumstances you are measuring that value. Respectively, these two elements are known as the standard of value and the premise of value. Once these elements are identified, a business valuation can be more accurate.