Business Valuation Blog | Understanding Buying / Selling a Company

Deciding How to Determine the Value of a Business

Posted by Business Valuation Specialists LLC on Apr 13, 2016 11:34:00 AM


Do you know how to determine the value of a business? Most business owners don't, and it opens up their business to unnecessary risk and causes them to leave money on the table during negotiations. The valuation of a company is a valuable tool that tells you where your business is strong and where it is weak. Business appraisals help tell you when you can take advantage of an opportunity without risking everything. Here are the different options to keep in mind when getting a company valuation.

Different Options for How to Determine the Value of a Business

So what are the different options available for how to determine the value of a business? It depends on your purpose. If you're just trying to get a ballpark figure, comparing your casual restaurant to the recent sale price of a similar business in your area, it might give you a general idea. You could also speak to someone that sold their business to try to get an idea of what your business is worth. But if you plan on using your company appraisal for any serious business purpose, you'll need to have the valuation of a company determined by a qualified, certified business appraiser.

Why are the first few options not as solid? If you're comparing to a neighboring business, you may not be taking into account important details. Though the businesses may seem very similar, you don't want to leave money on the negotiating table, especially if the owner was desperate to just get out of the business and didn't get nearly what the business was worth. In the second option, business owners may want you to think that they sold their business for more than what they really did.  Others may not truly understand earnings and multiples and give you misunderstood information. 

Why it's Important to Use a Qualified Business Valuation Company

The third type of business appraisal uses a qualified valuation firm. Why? Because a certified business appraiser knows how to put together a business valuation report that will stand up to strong scrutiny. The process of certifying as a business appraiser and building a reputation as a quality business valuation company takes time and effort. A certified business valuation specialist backs up their calculations with facts because they use a standardized methodology that follows the national accredited standards.

For this reason, the reports they produce will hold in court. They give you a position of strength to negotiate from when you're negotiating a business sale or merger, which ensures you get to walk away with everything your business is really worth. They provide proof of value, whether it's for an insurance claim from a significant loss, fighting a property tax assessment that is just not realistic or to secure financing for a new opportunity you're pursuing. They also provide you with information on the strengths and weaknesses of your company, allowing you to build it up into the kind of enterprise it can become.

Now that you know different business appraisal options and where to get proper business valuations performed, it's time to take action. If you're not currently working with a business valuation firm, please contact us. Our certified business valuation specialists are ready to help you discover the true value of your company to help you make it stronger.

Tags: business value, how to determine the value of a business