Many small businesses don’t have employees. Whether the business owner is a freelance writer, a graphic designer, a personal coach, an attorney, or offers another type of product and/or service, they run their business on their own. Recent United States’ figures show that there are 21.1 million firms that fall within this type of small business category.
How to Determine the Value of Your Business
At some point, many small businesses with or without additional employees may want or need to determine their business’ value. There are 3 approaches that are used to accomplish this goal:
- By comparing their business to the recent sales of similar businesses
- By considering the business’ earning power and risk assessment
- By determining the company’s assets
Standard and Premise of Value
When business appraisal services are requested, it’s important to note that the business value isn’t absolute. This is because the results are influenced by the circumstances under which the business valuation is requested. There are 2 key elements to providing a small business appraisal:
- Standard of value
- Premise of value
Basically, the former refers to how the business’ value is measured, while the latter refers to the circumstances under which it is being valued. When a business is seeking investors for expansion purposes, this might constitute a circumstance.
Financial Statements Needed for Business Valuation
In order to complete a business valuation analysis, a company’s financial information is required. There are 2 primary financial statements that are needed to determine this information:
- The income statement
- The balance sheet
Experts concur that in order to provide a thorough job, a business owner should have a minimum of 3 to 5 years of income statements and balance sheets.
What a Business Valuation Firm Can Do
First of all, when a business wants or needs to have a valuation, it’s essential that they work with a certified business appraiser. To begin the business valuation process, it’s important to have the documents listed above in order. During the initial consultation, a business owner will be able to engage in a relevant dialogue about their business and ask questions as well.
A business valuation firm will utilize a variety business valuation tools in order to determine both the standard and premise of value. As aforementioned, the circumstances under which the business valuation is requested will also be considered.