Business valuation is a mix of art and science. The bottom line is, of course, that a business is worth what a buyer will pay for it. However, there are ways of estimating a fair price. There are variations of these and there are other methods that apply to specific situations. It is not uncommon to value a business by a number of different methods and use an average (or more likely a weighted average that gives more weight to some methods than to others) of the various methods used.
Note that there are a number of reasons for valuing a business, other than buying or selling it. Businesses are valued for estate and tax purposes, divorce settlements, and for raising capital. In keeping with the purpose of this Web site, our valuation discussion here will be limited to valuations for buying and selling a business.
The value of a typical small business should be greater than the total values of its hard assets. For a buyer, the key is that an ongoing business has everything necessary — equipment, location, and inventory if applicable, not to mention experienced employees, suppliers, business processes, and a customer list — all in place, in the right amounts for successful operation of the business. But how do you put a price on this intangible asset, which is frequently referred to as goodwill or going-concern value? Moreover, how do you determine the true market value of the hard assets used in your business? The answer is that you enlist the help of experts like Exodus Business Solutions.
Many business owners don't want to spend the time or money to have a valuation done. However, the result is often a price that's unrealistically high and turns off many potential buyers, or a price that's unnecessarily low and keeps the owner from cashing out at full value.
As a group of specialized and experienced professionals Exodus Business Solutions has established a number of ways to quantify the value of key aspects of your business, and roll them up into an overall figure. As part of the process we will write up a valuation report, which explains in detail how we arrived at the final value. Having a valuation document prepared by an outside expert adds a great deal of credibility to your asking price, because the buyer will be able to see exactly how you arrived at your final figure.
Keep in mind that if you sell out to a larger company, you'll probably be dealing with MBAs who are used to seeing sophisticated financial analyses. They will be much more comfortable going through with the sale (and much more impressed with your management ability) if you have a detailed appraisal prepared.
On the other hand, remember that value is in the mind of the beholder. A professional valuation can tell you the price that an average buyer might pay for your business. However, when it comes to negotiating with an actual buyer, the appraisal is just a starting point. A particular buyer may have a strong strategic reason for acquiring your company, and may be willing to pay a premium over what the average buyer might offer. Another buyer might simply be looking for certain assets to augment his or her own business, and may not be willing to pay for your company's going-concern value at all. It's important that you and your business specialist size up the particular buyer's reasons for acquiring your business before naming a price.
Need help in establishing a fair and accurate value for your company? We offer business valuations for all types of companies. Click here for more information on our valuation services.