Business Valuation admin
As a business owner gets ready to place his or her company on the market, calculating the proper value of the company is critical. It’s especially important to get it right at the beginning of the process so buyer prospects and valuable time aren’t lost.
In practice, a proper valuation is determined by a number of factors such as a company’s sales, earnings, performance, market outlook, staff, management and assets. And it’s also impacted by intangible assets like the company’s brand, reputation and goodwill. Seller Discretionary Earnings is the most common approach Cindy uses to value small to mid-sized businesses, as it provides a real assessment of the business’s value to a new owner.
One of Cindy’s services is establishing a value for your business, based on information she obtains from you about your business and her assessment of all of the factors mentioned above. This foundational value is then fine-tuned with an understanding of the marketplace, financing options, potential sales agreement structures and other factors.
There are several balance sheet valuation methods, including adjusted book value, book value and liquidation value.
The adjusted book value is determined by revising the asset’s book value to reflect the cost it would take to replace the assets in their current condition. This method requires the total values to be offset against the sum of the liabilities.
The book value considers the figures from the company’s financial records, as depreciated at the time of the sale. The book value can pose some difficulties for sellers, particularly if the seller has depreciated the assets extensively to gain tax advantages in prior years.
The liquidation value is the amount that could be realized if all assets – equipment, furnishings and inventory – were sold separately. This value is typically much lower since it doesn’t consider a company’s intrinsic value.
SDE (Seller Discretionary Earnings) is the most useful and realistic approach to valuing a small business for sale. It addresses the most important consideration for a small business buyer: what type of income will the business provide me as its new owner?
Whatever the goal, a business owner needs a business broker to assess the value of their company. Pricing a business correctly will result in optimizing success during the sale process. Valuing a business properly is both art and science and only a business broker knows the market well enough to value a business properly.