Even if you do not have plans to be selling your business anytime soon, it is always good to know the business’s value. You need that information when getting a loan from your banker or from an investor who has money to invest in you. Knowing what the business is worth is as vital as knowing the value of your home.
Valuing a business
Actually, how to value a business for sale is open to interpretation. For example, the business’s actual worth is what someone will pay for it. Valuing it involves several metrics, some bare weight dependent on what type of business you have.
3 methods to assign value
- Based on the method
What it would cost to substitute all your assets with new equipment that is currently in your business? For those businesses without any earnings that exceed the value of its asset, this is the best way to assign value.
- Market method
With your home, you set its value by associating it to the houses in the neighborhood. You can look at your business in the same way – look at other businesses in the marketplace with similar assets – both intangible and tangible, you can determine in the same way. Of course, this approach in some cases can work against you if your business does not function like other companies.
- Income method
Lastly, you can allocate the value by looking at the business’s pretax as well as after-tax earnings or using some other metric involving income like gross sales. To this number add the tangible assets and then assign a number to account for any future growth.
To get an accurate determination of the value of any business requires hiring a professional appraiser who carefully will review a wide range of quantitative and qualitative business features. This is an investment that you should consider doing because it will be money well spent