Coming up with an accurate valuation for your business is the first step towards a profitable sale. Even if you aren’t putting your company on the market for a few years, knowing with your company is worth can help you shape your strategies to ensure a higher value sale down the line.
But, there are many different strategies to use to create a valuation for your business. If you’re not familiar with the strategies currently being used in the marketplace, it’s easy to over or under value your company.
Let’s take a look at some frequently asked questions to help you learn how to create a strategic valuation of your business.
When Should I Have a Valuation Done?
It’s always a good idea to know what your business would be worth on the open market. Any time you change your business model or add new technology, departments, or employees, you should have a new valuation done for your company.
What Methods Should I Use for My Valuation?
Choosing the right valuation method is key to figuring out what your company would be worth if you chose to sell it to a buyer. To create an accurate valuation, you should select multiple methods based on the type of company you have and then compare the estimates.
Should I Use an Asset Approach?
For businesses with tangible products and real estate, valuing the assets of your business is a great place to start. Consider all of the materials and locations your business has and estimate their value on the open market.
Unfortunately, this method can be a little time-consuming. An asset-based approach is a nice place to start, but, can prove unreliable.
Should I Use a Market Approach?
Comparing your business to comps on the market that are about the same size can be a good way to estimate its value. But, using a market approach can only take you so far.
Businesses are much more unique than you may realize. Very rarely can you find a company to compare yourself to that is in the same industry and location and that has about the same number of employees and uses similar technology.
Even if you do find a comp with all of these similarities, they may not have the same patents and intellectual property as you and they may not have your marketing and branding advantage.
Should I Use an Income Approach?
A final common method for valuation is using the income approach. This may be the most reliable method you can use.
You will use the numbers from your sales to estimate how much income your company is currently generating. This method works best for companies with large amounts of cash flow and profits. By using an income approach to valuation, you can easily demonstrate to potential buyers that they will be able to make money right away.
Does My Valuation Really Matter?
At the end of the day, your business is only worth what you can sell it for. No matter how high of an estimate you may come up with, if you can’t find a buyer, then you won’t make anything.
That’s why it’s important to hire a business broker to help you negotiate the sale of your business. At Dolan Sales, we have helped hundreds of business owners find buyers for their companies. Contact us for help today.