While this may be counterintuitive to many people, the process of completing a small business valuation and the results are very subjective. The final result of a business valuation process depends very much on the reasons you are looking to conduct an analysis for the business valuation in the first place. This is not an absolute. There are key factors that come into play when conducting a business valuation analysis. Two key factors are what the circumstances are of the business valuation and the way you measure your business comps. There are several ways to determine your business valuation. From making an analysis of your business comps to looking at how other companies that are similar to yours have sold for. Here are some tips for getting the best result from your small business valuation process.
Be as objective as you can.
It may seem like an impossible task to be totally unemotional when you are looking at the business valuation analysis process for your company, which you have worked so hard to create. It may be necessary to bring a professional business valuation services company to help get you an impartial analysis. You should be able to conduct a business comps analysis for your company but there are other aspects of the process that will be more challenging. You see your company through the lens of what you want for it. You may see potential that no one else sees, and that can be useful for some parts of the process. This is one reasons it is always a good idea to have an objective third party help with your business valuation process.
Decide what method is best for your company.
Consider using the “cost to recreate” method. Look closely at what you have created and how you did that. If you had to recreate the company that you have started, how much would it cost? This is a good way to tell how much a business is worth in hard numbers. That does not just include the capital that was laid out for the space and equipment but you need to look at what it cost to look for people to work for you, how much you spend on salaries, your marketing budget and everything else that went into what you have created If it all went away in an instant, how much would you spend to get back to the exact point when it vanished? This is a more concrete concept than it may seem and is a lot like working on your business comps in that you have tangible numbers to work with.
Look at other businesses in your industry. The “market multiple” approach is one where you look at similar businesses in your industry and see how they are doing. If a business that is a lot like yours has recently been sold, you can get a sense for how much your business could sell for. There is another way to apply this approach. If you see that a company that is similar to yours and you see it has a revenue stream that is about $500,000 but is trading for $1.5 million, you can apply the same formula to your business and see how your revenue is not the valuation amount for your company.
Talk to business valuation brokers.
When you are looking at help for small business valuations, you can really benefit from the advice of a valuation broker. These experts can be very helpful when you are trying to determine the value of your business. You can probably handle the business comps process but they can assess other aspects of your company. When you are looking to hire or just talk to a business valuation brokers, you should look for someone who has a lot of experience. They should also have impeccable credentials in the industry. You absolutely want someone to whom the International Business Brokers Association has given a Certified Business Intermediary designation.
Your business means a lot to you personally. It was created as the the culmination of years of very hard work. This is the main reason it is so important to bring in objective and impartial experts to help you conduct a thorough small business valuation analysis.