For the past decade or so, you have called yourself a business owner. You have put everything, including both money and time into the growth of your business to ensure its success. You have missed life events and have worked long weeks and weekends to ensure that the business was running at its full potential. The business is finally turning a profit, and you are getting older. You have decided to sell your business so that you can focus on more important things in your life. But, you do not know where to start. A lot goes into the sale of a small business, including finding a buyer and most importantly, setting a price.
There are a lot of details that go into creating your business appraisal valuation. The business appraisal valuation is the appraisal, or the value of your company. This is often calculated based on a few things, including the value of surrounding businesses that are similar in size and profits and the location of your company. The potential of the company in terms of profit will also be considered. A buyer will want to know what the value of the items they are receiving is and what type of potential the company has to make in future years to come. Business comps are an important step in finding out the true business valuation analysis of the company. The comps valuation is done by looking at what other similar type of companies have sold for recently, similar to a residential housing appraisal.
There are actually three approaches available when figuring out the value of your small company. You can determine the value of your business using there three approaches, by comparison to recent sales of similar businesses, based on the business? earning power and risk assessment, and based on the company?s assets. All of these models are important and require different information. One buyer may care more about one of these tools versus another one. The business valuation tools help the potential buyer calculate their investment into purchasing the company and how big or how small their risk is.
Business valuation is largely an economic analysis exercise. Not surprisingly, the company financial information provides key inputs into the process. The two main financial statements you need for business valuation are the income statement and the balance sheet. To do a proper job of valuing a small business, you should have three to five years of historic income statements and balance sheets available. Business comps will be compared to this information that is provided for the potential buyer of the company.
The company valuation tool that is used will also factor in the life of the business. Many businesses do not make it past a few years, so if a company is successful many years in, this is a good sign. In fact, 7 out of 10 new employer firms survive at least 2 years, half at least 5 years, a third at least 10 years and only a quarter stay in business 15 years or more. The length of the business being successful will also be compared to other business comps in the area for a true business appraisal valuation.
There are a few models available when calculating the business valuation analysis of a small company. Each one of the models looks at different aspects of the business, with each aspect being just as important. The business comps of local businesses that are similar that have recently sold will play a big part in the valuation analysis of the company. Other things such as the reason for selling, the profits and the items that are included with the sale of the business will also matter to a potential seller.
