If you own a small business inevitably the question of how much your company is worth will pop up from time to time. Company valuation has many aspects. There are definitely several different how to value a company. But on the other hand ther eare several ways to avoid when trying to discern the value of your company. Below are some of the dos and don’ts when it comes to going about company valuation.
The Basics of Business Valuation
At its core business valuation is mostly an exercise in economic analysis. It should come as no surprise that the lion share of information comes from the financial data of the company being valued. The most important financial documents required for a successful company valuation are the income statements and the balance sheets from the business.
Small Business Valuation Considerations
In order to thoroughly value a small business, there should be at least three to five years of data, including balance sheets and income statements.
When it comes time to figure out the value of your business there are several approaches. Here are examples of a few methods that might be a starting point:
Sales Comparisons of Similar Businesses: By measuring your companies sales to comparably sized companies in your industry you can get a rough idea of the value of your small business. This should only be used as a rough estimate, especially considering the vast difference from company to company, but at the least it should give you standard data to work against when progressing with your in depth valuation.
Revenue and Earnings: Revenue is another method of valuing a business. If a business sells about 250, 000 a year than it can claim a revenue stream of 250,000. But the revenue stream is only part of the equation. Revenue does no imply profit.A revenue stream is the basic amount of money coming into the company it does not take into account overhead and liability. Earnings are the sum total of the amount of money cleared after all liabilities and overhead have been cleared.
Company Assets: Assets amount to the what the business owns, including equipment and inventory. At the most basic level of valuation, the business is at least worth the price of its assets.
Business valuation is a very interesting exercise. Many times the results are influenced by several factors depending on the genesis of the valuation. The important thing to remember is that business values are not concrete and can vary depending on the person or people doing the evaluation. The Most rubrics to remember about the fluidity of business valuation is what is the means of business evaluation and what are is the occasion of the evaluation. The Technical term for these rules are called the standard of value and the premise of value.
There are several companies that offer small business valuation services. With some research you can find one that fits your needs.