Whether you are selling an established business or looking to raise money for a startup, it's important to be able to demonstrate the value of your company vis a vis the competition. This is something many business appraisals fail to take into account, yet it fundamental when you think about it: How can an investor decide whether a company is attractive without understanding where it fits in the market? Find out how to get the valuation of a business over its competitors.
Market-based approaches to business valuations see where a company fits in the market. For publicly traded companies, the Guideline Public Company Method makes sense. This form of business appraisal looks at prices that investors paid for businesses like yours, for instance how much similar businesses raised in Series A rounds.
If the business is not publicly traded, the Guideline Company Transactions Method may be used. In this method, a business appraiser estimates the value of companies similar to your business. For example, an appraiser taking the value of a dental clinic may look for dental practices in the same city. When comparing your company to others, timeliness is key. Markets are always changing, so a sale that is a few years old may not speak to the value of your business at present.
Tangible data is only one part of the business valuation equation. Any skilled appraiser understands that your company's personnel, knowledge base, and community reputation affect your market value. If you've been a family-owned business for decades and treat your clients as if they are family, this value cannot transfer with the business name and inventory. The connection is too personal. If your sales team is the best in the business and they're remaining with the company, on the other hand, the business value won't take as much of a hit. A skilled appraiser will ask the right questions to gauge the intangible essentials that make your business uniquely valuable and provide a thorough appraisal that communicates your value to investors or potential buyers.
When comparing your company to others like it, an appraiser will look at your position from a multitude of angles. There may be some areas where your company is dominating the competition, but there may be areas where your company is lagging behind. By looking at it objectively, the appraisal will deliver an accurate valuation of your position in the industry.
If you're thinking of selling the business down the road, it can be helpful to get a business appraisal in advance, so you can see where you fall in the marketplace. Knowing what you are worth compared with your competition, you can make informed decisions over business improvements with the goal of boosting your position in the marketplace when you're ready to sell, so you can maximize that return on investment.
No matter which method your appraiser decides to use to value your company vis a vis its competitors, they should be able to talk you through the appraisal in clear language and explain how they arrived at the business valuation listed on the appraisal.
You've only got one chance to impress investors with your offering, and a solid business valuation is one part of this package. Now that you understand how the local market affects your business value, you can select an appraiser who demonstrate familiarity with your industry, your market, and the business appraisal process.
