There are numerous motives as to why business owners choose to have an up-to-date business valuation. Some of these reasons may be because they need equity financing for business expansion, addition of shareholders, or simply because of family reasons. Regardless of the reason, the criteria you set forth will ultimately give you your final value estimate.

So, what is Business Valuation?

A business valuation or in this case company valuation is a process that involves a set of procedures that are used to establish the final value of a business. Although this may sound like an easy feat, determining the actual value of a business can be daunting and at times feel impossible especially when not done methodically.

Business Valuation Is Based On Assumptions

To begin with, it is important to note that there is no one “right” way to establishing the actual worth of a business. This is because business owners value their business differently.

For example, a business owner may value his business based on the impact it has on the community. Similarly, an investor may value a business based on its historic income, economic conditions, as well as the circumstances influencing the sale of the business.

What Are The Different Ways People Do Business Valuations?

Talk To Friends

If you are planning to buy or sell your business, the easiest way to get advice is by gathering input from friends and family with your proposed terms or peers who are based within your industry. However, it is paramount to note that most buyers or sellers will not put much credibility from your peers or friends figures.

Conducting Online Research

Before buying a specific business, it is your responsibility to conduct due diligence and research the seller. The easiest way is by conducting a thorough online research. This may involve researching the state of the industry (industry statistics), size of the business market (including any changes taking place in it), multiple of sales, among other factors.

Numerous online business valuation tools are available and can help in providing you with some guidelines on what the net income, annual sales, and value of the inventory of a particular business might be. One drawback of online researching is that most of the quality information will never be found online such as list of key assets, debts, etc.

Hiring a Professional

Establishing a logical value of a particular business is vital. And given that there is no secret formula to determining the exact value of a company, hiring a pro remains the best option. A professional Mergers and Acquisitions expert will help in valuing a business by conducting an in depth analysis of the practical part of the business that buyers look for. This includes assets and revenues.

While most times business owners deem that their businesses are worth more than they are, having a professional involved will facilitate the valuation process and put into consideration the numerous variables, both tangible and intangible. Here are the three variables that your Mergers and Acquisitions (M&A) advisor will consider.

• Multiple of earnings value: As a buyer, you will want to know the return on investment after expenses. Your M&A will do the calculations come up with the best possible value of the company.
• Asset valuation: Your M&A will calculate the value of both tangible and intangible assets.
• Comparative analysis: your M&A will conduct a comparative analysis of similar businesses that have been sold recently.

The ultimate goal of the business valuation is to get a fair market value. Therefore do your due diligence but more importantly hire a professional to do the job for you.