From time to time, businesses need to take a good look at where they stand in the market and in their industry. One thing that often surprises entrepreneurs is that when they look at the business valuation evaluation process, they will find that it is not as objective as they might have thought. The reasons for doing a business valuation report have a much bigger impact on the results of the process. This is not a purely financial report and it takes a lot of factors, some of which are intangible, into consideration. Therefore, many people who run small businesses are not always sure where to turn. Here are some tips to getting the best business valuation that you can.
Talk to some experts. If you have started your own company, you are an expert at whatever it is that your company does. That does not mean you are a corporate financial guru or an expert in accounting. The good news is that you do not have to be. There are plenty of people and firms out there to guide you. Talk to some of them and ask what kind if price tag they would put on your company, if they had to. Talk to at least two, it is better to go to three, firms to get some insight into your business valuation.
- Stay away from getting a formal small business valuation done. It may be tempting to just pull the trigger and have a professional business valuation services company come in and do it all. These can be overpriced and may not have a lot of sway with the people, be they investors or buyers, that you want to influence. There is one exception to this rule. If you are selling your business to other shareholders, you may want to get a formal appraisal done.
- Look at your industry. Where is your industry going? Is it growing or shrinking? You will get a lot of questions about your industry, the market and your company. You will need to be prepared to answer them to get an accurate business valuation. Try to be objective. Look at changes that are happening in your industry. Evaluate all of your team. Look at your contributions to your company. You may want to do a “strengths, weaknesses, opportunities and threats” (SWOT) analysis before you begin your business valuation.
- Look at how you compare to similar businesses in your industry. Are there any companies out there like you? If you have seen any companies that are similar to yours and they were sold, how much did they sell for? This is always good information to have and a good way to start your business valuation process. If you have seen another company that is like your go for sale, it may not be an exact way to measure your company’s worth but it can help you determine what the market thinks of businesses like yours.
- There are different valuation approaches, use more than one. There is the valuation market approach, the valuation income approach, profits after tax or earnings multiple approach and others. You should not complete one assessment, using one approach and think that you are done and that you have the most accurate business valuation that you can get. You need a more well rounded analysis to get the best sense of what the company that you have built is worth.
- Try to be objective and realistic. When you are looking at the value of your company, it can seem like an impossible task to be totally objective. This is something that you worked hard to create. You put your blood sweat and tears into creating something so it is only natural that you are going to place a high value on it. All entrepreneurs see more value in their businesses that outsides may. That is one of the most natural things in the world. It is important, however, to take your emotions out of the equation when you embark on a business valuation.
No matter what your reason for needing a business valuation is, getting an accurate assessment of your business is possible with some work and some effort.