Attaching a dollar amount to a business that you have spent years building may end up rooted in subjective personal feelings rather than in reality. The true market value of your business is what some one is willing to pay for the benefit of a return on their investment. Analyzing cash flows generated by the business along with market data will support the asking price of your business by objectively provide evidence as to what a buyer will expect to gain from their investment.
Expected future cash flows provide the most value for a successful operating business and are what buyer’s desire. The assets of your business other than certain intangibles such as: trademarks, patents, and special processes will provide little for the buyers return on investment. A buyer expects to generate future returns that can only be provided by cash flows and certain intangibles. Fledgling businesses not generating sufficient cash flows would have an approximate value of the net assets of the business. An asset-based valuation would over simplify the value of the business and neglect the earnings potential of the company.
An objective business valuation analysis can help establish a professional opinion as to what the present value (i.e. selling price of the business) of the expected future cash flows should be for your small business. Enlisting the help of a qualified business appraiser will significantly shorten the time needed to sell your business. In using the businesses proven profitability and earnings potential the appraiser can ensure that it is priced correctly to move in the current market conditions.