If you own a small business, the time may come when you need to determine its value. The good news is that there are a lot of small business valuation software and small business valuation tools that you can use. There are also different ways to determine the value of your business. Here are a few small business valuation methods that are used for this purpose:
- Look at your balance sheet. The most easy and straightforward way to determine your business’s value, and one that does not need small business valuation software, is to look at your balance sheets. What you need to do is take your assets and then find the value of your liabilities and assets that are intangible. Subtract the latter from the former and you are left with the “book” value of your company. The drawback to this method of valuation is that you do lose something when you oversimplify things. Often, this is used as the jumping off point for a full small business valuation report.
- Use your “book” value to get the “adjusted book value.” Once you have the book value of your company, if you want a more thorough small business appraisal done, you take that information and you apply the value vis-a-vis the market value. You may not get the impact of the current market value when you just do the math. This kind of valuation process is important when you are doing an appraisal of a company that may not be doing as well as it could.
- Look at how much it would be worth if you had to liquidate. This is not the most valuable appraisal when it comes to acquiring or selling a business but can be useful when you are trying to attract more investors. They often like to see this kind of valuation so that they can get a more full and complete view of how the company is doing. This is basically a snap shot number that tells you what the company would sell for, if that were to happen immediately.
- You can compare your business to others that are similar. This is often referred to as the “market multiples valuation.” If you need to use small business valuation software to do this analysis of your company, you look at businesses that are in your industry, have a similar workforce, size, clients or customers, etc. You can get a good sense of what your company is valued at when you see the value of other companies that do the same thing or produce similar products.
- Look at the net value. Also called the “net present value,” this small business valuation approach looks at how much cash you have coming into your business and how much you have going out. This summary of your cash flow status can also reflect the fact that anything money taken in at some future point does not have the same value as money taken in today. When you use small business valuation software, you will need to take advantage of the discounted cash flow valuation option to get a more accurate valuation of your business.
There are many reasons to want to have a small business valuation done for your company. One thing that it is important to remember is that this is not a purely economic or mathematical process. It can also be painful for a small business owner to do. In a lot of ways, the reason you are having your small business appraised will have a great impact on the results that you find. This is one area where other factors may come into place aside from the bottom line numbers.
When you are going to get some small business valuation software and start the process, you also need to do a few things to make it easier. Start by getting all of your financial data together. You will need to have a lot of information and the process of compiling all of it can take some time.
Lastly, as someone who may have built a business from scratch, it is important to try to find a way to divorce your emotions from the process, a very hard thing to do.