How to Value a Small Business
Putting a price tag on a business you have built and developed is never an easy task. Oftentimes, hiring a professional is the best way to go, but if you don't have funds to hire a professional appraiser, here are a few factors to consider in appraising your small business.
Letting go of anything that is dear to you can never be an easy task.
May this be your favorite shirt or your business, letting go of something you’ve held dear or worked hard to build, like a small business, is never an easy task. Even more of a difficult task is actually putting a price tag on what you have built, as if all your time, effort and expertise expended to raise and develop your business have any equivalent monetary value. To help you value your small business, here are only a few things to consider.
It is always good advice to consider going to a professional appraiser to have your business valued. Not only because they are the individuals that are trained to do business appraisals but also because they provide an unbiased third person who can look at your business and determine its worth in the market. Having said this, there are a lot of those who have no money or do not want to spend money on business appraisers. If so, there are a couple of ways to determine your business’ value.
One of the simplest ways to initially have a feel of your business’ value is to determine the price of your business’ hard assets. These are properties that are used by your business in its day to day operations such as equipment, merchandise, account receivables, etc. Subtract these assets from any debts or liabilities that your business still has. Some would stop at this and conclude that the resulting value is the price of the business. But also try to factor in the goodwill of your business or the name or popularity your business has achieved. Also consider your client base, the location of your business, the number of competitors in the area, the demand for your product and possible future growth potential.
Others look into other businesses that are similar to their own to compare the prices of these businesses and from there have a good approximation of one’s own business. There are online sites that may show you the selling rates of these businesses as well as the rates these businesses have sold. Such method, although giving you a feel of the price of other businesses, fails to take into account the earlier factors I have mentioned like goodwill, client-base, geography, and future growth.
Looking into your financial statements for the last few years may also give you an idea of your business’ current situation. How much exactly is your business making after subtracting all the essential expenses? Do not subtract the discretionary expenses so that the true value of your business appears.
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