Know The Value Of Your Business
Why Obtain an Independent Business Valuation?
Valuing a business is both an art and a science...it's a complex and painstaking process. Many factors have to be considered in valuing a business, such as future earnings potential, asset analysis, and environmental influences related to economic and industry conditions. To reflect the years of hard work in accumulating a business’s tangible and intangible assets, a business owner must use much more than tax returns and financial statements as the basis for the financial presentation of their business. While using tax returns and financial statements may be good for tax purposes, they do not fully indicate the business goodwill or intangible value.
Reasons for a Valuation
Always know the value of your business Sellers wake up one day and say "That's it" - they are burned out or they are having health issues. For many reasons, business owners should always know the value of their business.
BBNY can provide an unbiased business valuation. Leave your emotional baggage behind, be realistic and accept the valuation for what it is - a snapshot in time. Many business owners think that blood, sweat and tears increases the value of their company. Unfortunately, that is not the case.
Many business owners think that a buyer should pay them the money they invested in the business, no matter what the business is generating in income and profits. Unfortunately, that's also not the case.
Gap analysis What's really determines the value of your busines? What reduces the the value of your business? or more to the point, what will increase the value of your business? Although the following list is not comprehensive, these are some of the categories you should focus on to increase the value of your company:
- Financial Strength.
- Employees and Key Employees
- Vendors and Suppliers.
- Repeatable Systems and Processes
- Competition and Differentiation
- Facilities and Location.
- Future Business Projections and Outlook
Fair Market Value
Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer. FMV is generally the basis for tax assessment and court awards. Also called fair value.
Asking Price vs. Selling Price
If the asking price is too high buyers may hesitate to even make an offer for the business. A high asking price may place the business outside the maximum price level of buyers looking for similar businesses. And those looking in that higher price range may see that the business does not warrant such a high price. The important factor to understand is that there isn't one magic number that your company is worth. There is a variety of valuation methods used to determine the monetary assessment of a company. Each of these methods will provide a different figure and ultimately, the value of the company is what someone is willing to pay for it. Real World Criteria
The value of a business is usually a function of its earnings, not its tangible assets. Depending upon the nature of the tangible assets, it is true that a buyer might be willing to pay more for a business with a lot of assets based on the idea that if all goes badly, the buyer can at least sell off the assets and recover some of the investment.
If the asking price is too high buyers may hesitate to even make an offer for the business. A high asking price may place the business outside the maximum price level of buyers looking for similar businesses. And those looking in that higher price range may see that the business does not warrant such a high price. The important factor to understand is that there isn't one magic number that your company is worth. There is a variety of valuation methods used to determine the monetary assessment of a company. Each of these methods will provide a different figure and ultimately, the value of the company is what someone is willing to pay for it. Real World Criteria
The value of a business is usually a function of its earnings, not its tangible assets. Depending upon the nature of the tangible assets, it is true that a buyer might be willing to pay more for a business with a lot of assets based on the idea that if all goes badly, the buyer can at least sell off the assets and recover some of the investment.
