Whether you’re buying or selling a business, it’s important to set your personal feelings aside to do a systematic business valuation. There are three best practices to valuing a small business. Factors that can help determine which way is best for your business include industry, size and circumstances of sale.
1. Market-based business valuation
Best for profitable, ongoing businesses and one of the more simplest and most relevant. This method compares a business to other, similar businesses that sold recently. You need to compare apples to apples; similar financials in the same industry and market and then compare pricing multiples.
2. Asset-based Business valuations
These are commonly used for unprofitable or closing businesses. An asset-based business valuation focuses on the book value of a business. In this approach, business assets are valued, totaled and any liabilities are deducted.
3. Income-based business valuations
These valuations are commonly used to value commercial real estate, or to complement a market-based valuation for businesses with predictable earnings. This method depends on projected future earnings and is common in commercial real estate asset valuation.
Knowing when to engage a business broker professional is key. Beginning the process early and engaging such a professional as values increase and so do the risks of over or undervaluing a business. It also allows you to benefit from their expertise and objectivity when valuing a business. At Trustmark. we provide business owners with numerous affordable options to determine a range of what your business value could be on the open market and roadmap to the selling process.
Working with a trusted business broker can help you find the value of your business, maximize the price, guide you through the sales process and help you sell it to the best possible buyer.