There are many different approaches to Business Valuation. Minnesota has several companies that can help you ascertain how much your business is worth, and it is definitely a good idea to use the services of an experienced professional if you are thinking of selling your company.
How Is My Business Valued?
Businesses mean different things to different people. The business owner, for example, may think that the community support it enjoys, and the value it adds to the surrounding area, need to be taken into account when determining how much the company is worth. An investor, on the other hand, may only look at historic income and expenditure.
This is why there is no one way to assess what a business is actually worth, and a business valuation is really an assessment of what the business is expected to sell for. Professional businesses valuators will usually use a combination of the three approaches below, as well as others not listed, in order to obtain as accurate a value as possible.
Asset Approach
This approach asks the question “How much would it cost to create a business just like this one, offering the same economic benefits for the owners?” The easiest way to answer this is to break the business down into simple lists of assets and liabilities. The difference between the two is how much the business is worth. This is not, however, always as easy as it sounds as in many cases, the real assets – such as products that have been developed internally, and the way the company does business – are not recorded on the balance sheet.
Market Approach
This approach asks the question “What are other similar businesses worth?” and is based on the age-old economic principle of competition and fair market value. This approach to business valuation is based on a market assessment of what a willing buyer would be prepared to pay for a business similar to yours, and what the owner of that business would willingly accept.
Income Approach
The question asked in this approach is “What economic benefits will I get if I invest my time and money into buying this business?” You have to determine how much money the company is likely to make, and this is known as the economic principle of expectation.
Sunbelt Business Advisors offer reliable and knowledgeable business valuation services. Visit www.sunbelt-business-advisors.com for more information.
