There are a lot of things to take into account when selling your business. Obviously, you will include your sales, bottom line, profits, rent and costs, and employee costs. Setting a price too low can undervalue your business, making people wonder why it is so cheap and you lose out on owed money. Setting a price too high turns potential buyers away, and you may be stuck with the company forever. Coming up with an accurate business valuation report is extremely important. It is usually best to leave this service to a professional business evaluation services firm for many reasons.
Avoid minor, yet costly mistakes
With the existence of business valuation software, you may be tempted to create your own business evaluation. The business valuation software allows you to input important information about your business. It also usually contains some type of a business valuation calculator. After inputting information, it may provide you with an evaluation. This number is not always accurate. It does not account for important things, such as intent of sale and additional assets not accounted for in numbers.
While it may be surprising that the valuation results are influenced also by your need for selling, but business value is not absolute. This is what makes it so difficult to achieve an accurate result from business valuation software. It is a process of measuring business worth, which depends on two key elements that business valuation software cannot account for, how you measure your businesses value and under what circumstances. Are you selling your business because you are retiring or because you are quickly losing money? Your intent to sell makes a difference in the evaluation.
The need for multiple evaluation tools
With so many methods available for measuring your accurate business evaluation, it is best to look at all of them in a comparative matter. Using just one company valuation tool can put you on the low end or the high end of your price point. It can affect your sale and disvalue your business. There are three well known methods that a business valuation firm will use. These include the comparison of recent sales of similar businesses, based on the business? earning power and risk assessment, and based on the company?s assets. Although none of these models specifically address intent of sale, that does affect the evaluation in each model.
Better comparative abilities
Selling a business is much like selling a house. If you were to sell your house, you would not have enough knowledge of the local market trends to properly list your price. Your best chances are in working with a licensed real estate professional who is aware of the market trends and what houses similar to yours are selling for. The cost of the realtor?s commission is usually made up in the increased sale of the house.
You receive the same benefits when selling your business with a business valuation firm. Business valuation firms are in the business of evaluating business values and they are aware of what local businesses have sold for. They are also aware of important selling points that your business may be missing and can improve on for a quicker sale, at a higher price.
Important document retrieval
Failing to include just one important document can not only lose you the sale, but can also severely affect the accuracy of the evaluation report. Business valuation is largely an economic analysis. The company financial information provides valuable information to the process. The two most important documents are the income statement and the balance sheet. For an accurate evaluation, you should also have three to five years of historic income statements and balance sheets available.
Selling a business requires setting a competitive, yet fair price. Under pricing or over pricing can affect the sale of your business. It is important to have a complete business valuation that is both accurate and extremely detailed. Avoid the temptation to complete your own report and improve your sale chances by using a professional valuation business firm.