Get the Most Out of Working with a Business Valuation Firm

Small business comps

If you have started a new business, you are not alone. Nearly 543,000 new companies are started every single month in the United States. If you are looking to hire a business valuation firm, you may not know where to start. Your business is like your baby and you see the unlimited potential it has. When you are trying to do a business valuation, the first thing you need to do is assemble all of the data you can on your business and asses why you are looking to get a small business valuation done at all. It may be surprising to hear but the reasons you are conducting this kind of business valuation report does have an impact on the results you get. You have to remember that your business valuation analysis is not absolute. What you plan to do with your findings do influence what they are.

Hiring a business valuation firm may be for first best step. These firms can hep you come up with a decent business valuation that meets your needs and does not include the emotion you always bring to things like this. The first thing you need to understand is that there are different kinds of business valuation methods.

  • The Asset Based Business Valuation: This is often considered to be the most simple way to place a value on a business. You add up your assets and debts and come to a number. There are a lot of companies that take a lot of time preparing these reports every month, quarter and year. The main drawback is that is misses any potential growth your company may experience. It is a good exercise to do either way.
  • The Income Based Business Valuation: This looks at the one intangible ignored by the Asset Approach. This takes into consideration the potential to make money that the business has. This is most useful for companies who are taking their businesses to potential investors. The main drawback is that it is not as useful if you are looking to sell your company.
  • The Market Based Business Valuation: If you are just looking to sell your business, this is the approach for you. The goal here is to look around and see what similar businesses to yours have sold for recently. The main downside is that this can be influenced by who is looking to buy and what they want to do with your company once they have it.

Working with the Right Business Valuation Firm:

  • Get your financial records straight. Some companies use different methods to do their accounting. To arrive at a business appraisal valuation that works, you need to make sure your financial records are normalized to the current standards of the day.
  • What are the pertinent economic indicators? You can have two very similar companies that have the same assets but have a much different business valuation. How is that? You have to factor in inflation, the interest rate and whatever the tax situation is.
  • Look at similar companies. Look at your competitors in your area. Look at the companies that are about the same size and do the same thing. This is a not a perfect way to determine your business valuation but it is a start.
  • Report your findings. All of this research and work is useless if you cannot compile a report that is usable by outside investors or entities that want to buy your company. This needs to provide a detailed accounting of your process as well as your ultimate findings. This is what you will show to prospective investors and others.

For many people who are working on their first start up, working with a business valuation firm can be really stressful. People sometimes like to think they are not emotionally invested in their business but that is really impossible. Find an outside business valuation firm to help you get the best report for your business and your needs. This is one of the best things you can do to get your company moving in the right direction and put your best foot forward with potential investors and others. Find the right company and you should have a good experience.

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