Business valuation is the process by which business owners determine the worth of their business. This procedure may sound easy and straightforward, but the devil is in the details. To achieve a credible and accurate valuation of your business, you have to be equipped with the required knowledge, and a have a good deal of thought about the process. People value businesses differently. But don’t worry, RockRose Realty is here to assist you.
For instance, a business owner in Florida may believe that the value of their business is evaluated by its contribution to the immediate community it serves. A financial expert, on the other hand, may believe that the value of the business is purely based on its ability to generate revenue and the desired returns. A business broker in Florida may not be accurate with their valuation as they aim at making the most out of a deal.
Reasons for Business Valuation
- You may value your business when you are preparing to sell it.
- You may require equity financing to finance your business or because of cash flow problems. In this case, potential financiers will need to see that your business is of sufficient worth before buying it.
- When adding a shareholder or two, or when one of the shareholders opts a buyout. In such cases, it is necessary to determine the share value of the business.
Approaches to the Valuation of Businesses
Under this approach, the business is viewed as a set of assets and liabilities. Any business broker in Florida would tell you that this approach is based on the economic value of substitution. It anticipates how much it would cost to create another identical business to give the same economic benefits to its owners just as the previous one.
It values each of the business’s equipment, machinery, office furniture and other assets. The downside to this approach is that it overlooks overlook costs like the lost income that will emerge from staking out your business as your competitor rakes up the dough.
This approach is also known as the earning value approach. It is an approach that is predicated on the thought that a business’s true worth lies in its capacity to produce revenue and wealth in coming days. With it, the anticipated level of cash flow is determined using the records of the business’s earnings. The past earnings are then normalized for unusual expenses or revenue and then multiplies the anticipated normalized cash flows by a factor of capitalization (reflected return rate).
Market Value Approach
Businesses are valued by comparing them to other similar ones that have been sold in recent times. This approach to valuation is vital in determining the business’s fair market value. It is as easy as knowing your market. Whenever you want to sell your business or buy and know the going rate, you wouldn’t offer more to a business broker in Florida or accept less, right?
Business value is usually in the eyes of the beholder. Using the three approaches to value your business is a good idea so you leave no stone unturned. Call us at 407-933-2242 or visit our office in Florida to find out more about buying, selling and business valuation.