A Few Things That Might Go Into A Small Business Valuation


Small business valuation methods

What should be our willingness to pay for something? If you ask this question around a person with a head for finance or economics, they will almost immediately rattle off an “It depends.”
“On what?” you’re probably thinking. Well, a lot of things. But you’re reading this article because you are considering buying a small business. Below are a few things your willingness to pay for said small business should depend on:
1. The business valuation formula you’re using.
Just like you would never build something without plans, you should never buy something without some sort of business valuation principle backing up your thinking. Business valuation, for all you beginners out there, is a process by which the economic value of a business is assessed. This value will determine your willingness to pay. There are a number of small business valuation methods out there, and a good accountant will be able to walk you through this or that small business valuation formula. However, all small business valuations will look at…
2. A business’s assets versus its liabilities.
Or, for the layman, how much the business owns versus how much the business owes. This information can be found on the balance sheet of every business. It’s safe to require at least three to five years worth of these financial documents to do a good business valuation analysis.
3. A business’s earning power versus it’s risk.
For earning power, you’ll want quarterly or at least annual revenue statements for three to five years. Assessing overall risk however gets a little complicated. It’s not just a matter of how much the small business owes. Other things that can effect risk are:
-Market share
-Overall economic conditions and projections for the industry
-Condition of capitol and PPE
-Habitual cash on hand
And that’s just naming a few.
4. A business’s standing compared to other businesses in the same industry.
What do you do when you want to buy anything? Well, what you should do is shop around and compare price points, customer service, and deals. The same is true when you’re shopping around for a small business. Figure out how their sales are doing and if they have a strong customer base. Assess whether their brand is associated with ingenuity. Heck, check Ylassdoor, yelp, Consumer Reports — what ever you can get your hands on to figure out the general reputation of this organization compared to other similar organizations. All these factors will go a long way in determining an accurate business valuation.
Once you’ve got an accurate business valuation…
The real work begins. Namely, negotiating a price that satisfies both you and the seller and putting your mark on your brand new asset! Good luck! More info like this.

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