As a business owner, there are many reasons why you might need to know what your business is worth. Whether you are looking for investors, applying for a loan or considering selling your business, professionals like John Binkley Dallas can provide business valuation assistance. Here is an overview of some of the different approaches that may be taken to provide a valuation of your business.
This approach may be the most straightforward way to determine how much your business is worth. Remember that value is basically measured by the price that someone else is willing to pay for something, and you can get an idea of that by considering what people have been willing to pay for a similar business. The challenge may be to find a comparable business. The usefulness of this approach is the fact that it does take account of what people are willing to pay. Despite the fact that your business may have significant assets, wider economic conditions might mean that buyers are simply not prepared or able to meet a price that might be appropriate to different economic conditions. In this way, the market value approach is useful in balancing what might be a technical accounting of assets against the fact that the value can only be realised if people are willing to pay for it.
These approaches determine the value of a business based on the assets it holds minus any liabilities. This is done by finding the value of property, equipment, bank accounts and other assets after liabilities are paid off. While it seems quite straight-forward, it can sometimes be difficult to get an accurate accounting of assets, especially if the business in question is a sole proprietorship. This is because sole proprietors may be using assets for both business and personal use.
Another useful way of evaluating a business tries to measure how much money the business will earn in the future. There are two main approaches to determining this – one looks at past earnings to generate an average, and the other looks at projected future trends. A challenge associated with this approach is that it can be difficult to know how much of an impact customer loyalty will have – especially in the case of small businesses which provide services, it may be the case that customers will not continue to give their business to a new owner. Another challenge is related to the obvious difficulties of making predictions about the market – if there is a pessimistic take on the future of the market, the business may end up being undervalued in the present, the opposite will be true if there is an overly optimistic sense of future conditions.
Clearly, each of these approaches has some strengths and some weaknesses. This is why when valuing a business, the best calcuations may be based on a combination of all three. This will allow a balance between past, present and future possibilties, and will be more likely to provide you with a fair value for your business.