When you're trying to sell or improve your business, part of that process is being able to determine the value of that company. Though that may seem like a relatively straightforward process, most business owners still don't know the answer to the question "What is the real value my business is worth?" There are a number of different ways to develop an approximate value for your company, there are only a few ways to determine that value accurately and in a way that puts you in a position of strength for a range of different negotiation situations. Here's a quick look at different ways to value your business.
How do I Determine the Value My Business is Worth?
- Ask for offers on your business. This is one of the worst ways to get an idea of what your company is worth, because you'll be beset by people who may be far off on both ends of the spectrum, though it's much more typical that you'll receive lowball offers at this point. This doesn't mean you can simply add on to these offers to estimate your business' true value, as there are many more factors that must be taken into account in determining your company's value.
- Do your own research. You could look at how much similar companies have sold for in the past and estimate your company's value based on that information. However, it can lead to significant inaccuracies. What condition was the market in when that company sold? What was the value of their brand and their reputation for innovation? What about differences in the market sector that is served or the perceived value of their products and services? These factors all impact value.
- Check with a real estate agent. A real estate agent can give you a more accurate picture of your company's value, but that value can be influenced by their interest in how quickly they want your company to sell so that they can receive their commission check. If it's been a rough month, they may lowball your business value to improve their short-term income, or if it's been a great month, they may come up with a high figure hoping for more income down the road.
- Have a professional appraisal performed. This is the best way to have the value of your business determined. Professional appraisers use a range of techniques that have learned that have been tested in real-world situations. This means that they're very good at determining the exact value of your business in a wide range of situations, whether you're just looking for a leg up on business growth or are preparing for a sale.
By understanding the differences between these options in determining business value, you can better answer the question "how do I value my business?" without a lot of worry about whether the value you're receiving is an accurate one or not. Remember, if you want the best quality appraisal report for your company's value, it's important that you choose to only work with a certified business valuation specialist. This type of appraisal uses a quality set of methodologies that have been tested in a wide range of real-world situations that can be used in a number of different applications.