How to Do Business Valuation | Article Pinch

How to Do Business Valuation | Article Pinch

13.07.2010 | Author: David | Posted in Legal

Are you puzzled about how much your business is worth? Well, you are not the only person who had faced this question. Many business owners come across this question when some one else is willing to buy their business. Have you experienced a similar situation? Are you going to have a meeting with a third party that has shown interest in buying your business?

The first reaction people have is panic. They are often confused about the following things:

o How much should they ask for?
o How much is their business actually worth of?
o What is they ask for too much?
o What if the third party offers too little?

Well, it is not an easy task to decide how much is your business really worth of. You can ask your family members, friends or relatives about it. But if they don’t have any idea about business valuation you will have to turn to someone else for help.

The easiest thing you can do is to go online. You can search with keywords like “business valuation”, “measure business value”, “business value” and so on. You are sure to find tones of blogs and article on this subject. Everyone expects the magic formula to work. But still you will find it difficult to find an exact answer. Well you will at least get a general answer. A rough estimate is still helpful. For example the result may show that your business valuation ranges from $25,000 to $250,000.

Fine to get an idea, but what next? How are you going to decides is it $25,000 or $250,000? So now you must have understood that there can be no easy answer to the question “What is my Business Worth”. When you ask such questions; the answer is “well, it depends”. All business owners hate this answer. But it is true that your business valuation actually depends on various factors.

Some of the criteria you need to take into account include the following:

Your Business Team: Your business would have meant nothing without a great team including a good management and efficient employees. Without your team your net profit or profit margin etc would have remained just numbers. So keep in mind your team when you think of evaluating your business.

Evolution of Profit and Loss: The revenue graph is of great importance when it comes to business evaluation. For example your company has earned a revenue of $20,000 the first year, a revenue of $30,000 the next year and a revenue of $50,000 the third year. Now the value of your business will be much more than a company that has earned revenue of $50,000 the first year and revenue of $30,000 the next year.

The Market Share and Market Size: The market share a company holds also plays an important role in its evaluation. Market size is another crucial factor to consider. For example there are two companies, one on a $2 million market and the other on $5 million market. Naturally the second company has more growth potential. So its value is going to be much more than the value of the first company.

If you ever try to get an idea about your business valuation keep these points in mind.