A Brief Introduction To Business Valuations

A Brief Introduction To Business Valuations

Jul.14, 2010 in General Business

If you wish to know how much your business is really worth then a business valuation is exactly what you need. Business valuations help you to keep track of your business; you can find out if your business has grown or depreciated in value. Businessmen carry out business valuations for different reasons. Some do them so as to sell their businesses for what they’re worth; some do so for the purposes of expansion when new business partners are in the process of incorporation.

A business valuation is normally requested if a business owner is thinking of selling his business. When an estimate of the businesses value is produced a businessman can then proceed to sell. It is necessary to do so because there are some businessmen that sold their companies for less than what they were really worth. But valuations must be as realistic as possible because overvaluing can result in potential businessmen being chased away.

Effective market research is key to a successful evaluation. The local market is a good indication of present market values as well as market trends. Be wary of the knowledgeable businessmen who can challenge the value of your business because they feel it’s valued more than it is actually worth. This is a good way of being realistic.

Accuracy is crucial if the purpose of your valuation is to determine how much a new partner is supposed to contribute. This will mean making exact calculation as to how much associate partners contributed and how much more they have made over the years. It is very possible for a new partner to benefit from an undervalued business.

Selecting the right assessor is important. A specialist service will guarantee you of accuracy but a layman’s evaluation can be the source of problems. There are Auditors; Accountants and Business Transfer agents whose job is to accurately value a business. Some of these ask for an upfront payment but some of them ask for commission upon the sale or expansion of the business. Be sure to work with someone with experience.

A number of factors are taken into account when it comes to business valuations. There are some assessors who consider market values and trends. Knowledge of the local market will be an added advantage to the assessor because it is only then that a valuation will be realistic. Sometimes an assessor would have valued a similar business; this will provide a good starting point for a valuation.

The locality in which your business is based is one factor to look at. When your business is located in a high net turnover area then you’re guaranteed of a fairly high valuation of your business. But if your business is located in a remote and inaccessible area then you stand to get undervalued.

When all is said and done all business valuations work with timeframes depending on the nature of your business. Because of this there are some valuations that will cost a lot of money and take long to complete. If the structure of control in a partnership is intricate you are destined to have to wait for longer than usual. But if ownership is basic and straight forward a valuation will be cheap and easy.