How to Choose a Business Valuation Method

You’ve spent a great deal of time and creative energy building your business to where it is today. While you might be tempted to take a rest, now is the time to decide where you want to go with your business next. Continue reading this article to learn how to choose a business valuation method.

The first step in selling your business is getting a proper business valuation. Getting business valuations in Sydney is extremely important when you want to get top dollar for your business. Without a proper business valuation, there isn’t a good starting point for negotiations.

Business Valuation Method Options

Assets

Every business has assets and liabilities By doing the math and determining all of your assets, minus liabilities, you can find the “book” value of your business. This figure is more commonly referred to as net worth.

With the asset-based model, instead of focusing on profit generation capabilities this valuation has a sole focus on the net worth and what the business has right now. Since this is the case, this is most often the method used whenever businesses want to go into liquidation.

In liquidation situations, this is usually when owners are being forced to sell because of major problems. If you want to get the best return when selling a business, it’s better to sell when your business is doing well, as opposed to when it is failing.

If your business is profitable and experiencing growth, you should stay away from the asset-based method of this valuation. With this method, you will get the minimum value of the business. Though this is the minimum value of the business, it is often much lower than the actual value of the business.

Industry Norm

Business buyers are likely going to have researched similar businesses in your industry, and the average price for which they have sold. Depending on the value of your business, this average selling price could either help or harm your bottom line.

If your business is valued above the average value of similar businesses, you don’t want to take a loss by selling too low. It is wise to pay close attention to what is going on in your industry.

When you have enough specific information about similar businesses which have recently sold, you can get a benchmark for how much businesses like yours are selling for in the current market. Since all companies do not operate in the same manner, your business may not be valued at the same rate as the other businesses.

Discounted Cash Flow

Discounted cash flow is a great option when your company is prospering. If your company is going to continue to be profitable and experience gains, you want to use DCF or a similar method of valuation. An income approach like DCF will mean you take into account the future earnings of the company as well as the risk of the business.

Both sellers and buyers are often happy with a DCF valuation because it allows for a proper valuation of the current value of future generated wealth. Your valuation company is likely to look five years into the future to determine how much the company should sell for.

Understanding how the DCF model works will allow you to see how much more effective it is for a prospering business. Don’t sell your business short by using an asset-based model of valuation. Get the most out of your company with the best model for your situation.

Getting the Most Money Out of Your Business

If you want to get the most money out of your business, you need to prepare your business properly before your valuation. Get all your financials in order, put systems in place to run your processes and make any necessary improvements to the look of your business.

Curb appeal is important to businesses just like it is to homes. Unless you have a buyer that wants to come in and fix up a run-down company, you need to prepare a well-oiled machine for your potential buyers.

The higher a valuation you can get for your business, the better starting negotiation point you have. Remember that even if your business is valued at a certain price, you can’t demand that price. If a buyer isn’t willing to pay, but you are motivated to sell, you may need to go down on your price.

On the other hand, if multiple buyers are interested in your business, you may get more than your initial business valuation. When there is a lot of buyer interest on your company, it isn’t uncommon that the business will sell well above its initial valuation.