Skip to content Valuing a business is important for multiple reasons, especially if you are selling it. Valuing a business for sale ensures that you offer the business at an appropriate price and terms to your buyers. This is one of the first and fundamental steps that a business owner must complete before selling their business.
Some business owners simply refer to the “total equity” section in their balance sheet to determine the value. However, this is only one of the many pieces of information that are used to calculate the true value of the business.
If you are planning to sell your business, you should understand the common methods to value it.
Common Business Valuation Methods.
Income-based Approach
An income-based approach measures the current value of projected future cash flows generated by the business. The company is valued following this approach by multiplying company cash flow by an appropriate discount rate.
Three primary income-based methods are the Discounted Cash Flow (DCF), Capitalization of Earnings and Excess Earnings methods.
DCF’s concept is that the company’s total value is based on its projected future earnings. The Capitalization of Earnings’ value is based on future estimated earnings and cash flow generated by a company. Lastly, the value of the Excess Earnings is based on the net income generated from a company’s intangible value.
Market-based Approach
The market-based approach to value your business is based on current market conditions and transactions. To determine the value of the business, market prices and metrics are directly used.
In this method, your company is compared with sales transactions of other companies in a similar industry and with a similar size. This approach is reliable, trustworthy, and highly effective when valuing a business for sale.
Asset-based Approach
The asset-based approach for creating a business valuation considers that the value is equivalent to the sum of its parts or replacement costs for the business. The method is effective in quantifying the fair market value of an entity’s tangible assets.
The key values considered in this approach are Book Value, Going Concern Value, and Liquidation Value.
The calculation for the book value is done by subtracting the company’s book value of liabilities from the book value of its assets. The value of the Going Concern method is determined by the worth of the business’s existing assets, subtracting the outstanding liabilities. The Liquidation Method is calculated on the value of the company’s assets, if they went out and were sold off in compulsion.
Other Factors Affecting the Business Value
Market Condition
As a business owner, you cannot operate in isolation. The external factors that are marked by competitors’ actions, market dynamics, and industry-specific trends significantly influence the value of the business. If the market condition for your industry is favorable, buyers might be ready to pay a huge amount. Unfavorable market conditions might not interest buyers in your business sales.
Intangible Assets
When valuing a business, people often overlook intangible assets, such as intellectual property and goodwill. But, the fact is they play an important role in the business valuation process.
Buyers consider the reputation of the business in the market and whether it’s safe to invest in it. Though there is no numeric value for intangible assets, they are important to find the actual worth of a business.
Risk Factors
Every business comes with a risk. The point is to know how these risks are affecting a business and its operations. If a business is in an extremely risky situation, the calculated value is low. You cannot expect your buyers to pay the actual worth of your business, ignoring the risky or challenging scenarios.
Conclusion
A proper Business valuation is important when you are selling your business so that you can ask for the right price from your buyers. So, seek help from Adam Noble Group, the leading and get professional, independent third party business valuation services.
NOTE: The sale of a business is confidential and discreet; PLEASE DO NOT VISIT THE BUSINESS OR SPEAK WITH ANY EMPLOYEES. We know about many businesses that are for sale but might not be advertised. Check out www.adamnoble.com for more information and consider registering your criteria as a purchaser.
ALL STATEMENTS, FIGURES, AND VALUES ARE SUBJECT TO A PROSPECTIVE PURCHASER’S DUE DILIGENCE. THE INFORMATION FURNISHED BY M&A ADVISOR ABOUT THE BUSINESS AND ITS FINANCIALS HAS BEEN PREPARED BY OR IS BASED UPON REPRESENTATIONS AND INFORMATION SUPPLIED BY THE SELLER. ADVISOR HAS MADE NO INDEPENDENT INVESTIGATION OR VERIFICATION OF SAID INFORMATION.
For information, reference Texas Renovation-Rehab Multifamily Construction Services Business for Sale Business for Sale 20456 and contact Jeff Adam, PE, MCBC, FRC, CBB at Adam Noble Group, LLC
Phone: (817) 467-2161
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During 3 decades of M&A service, Jeff Adam has successfully completed the sale of over 825 businesses and advised or completed 1,000’s of business valuations and exit plans. An entrepreneur in his own right, Jeff has started and grown 12 companies in fields including international finance, B2B services, business valuation, construction, screen printing, Mergers & Acquisitions, engineering, and manufacturing. Jeff has donated his time as a distinguished speaker at numerous national & international conferences since 1977 covering topics such as environmental services, engineering, media, craft breweries, exit planning, business valuation, charitable giving, management, business brokerage and M&A fields.
Jeff is President of Adam Noble Group, LLC, a national M&A Advisory firm, professionally valuing and confidentially selling profitable businesses owned by exit-motivated business owners to qualified strategic, corporate, private equity, partners, management, and first-time buyers. Jeff establishes rapport, builds trust, and educates business owners in the steps to meet their goals as they prepare and achieve the discreet, confidential exit of their business. Jeff exclusively represents sellers of $1M-50M value enterprises and endeavors to transfer their businesses to qualified, capable acquirers who will build upon the seller’s vision, goals, culture, and history. Jeff maintains lifelong repeat and referral relationships with sellers, their acquirers, and service providers.
Adam Noble Group has multiple M&A and business broker specialties: Manufacturing, Defense Industry, Oilfield services, Construction trades, Craft Breweries, Partnership Buyouts, Manufacturing, Service, and Wholesale Distributors.
Our M&A advisors and business brokers are all multi-industry entrepreneurs who have successfully exited their own companies. Jeff has walked in your shoes! Jeff wants to put the BIGGEST CHECK of your life in your pocket! Please contact Jeff, and he will confidentially answer all your questions.
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