Business Valuation Do’s and Don’ts

If you're thinking about selling your business, it's important to understand business valuation and what goes into it. Business valuation is the process of determining what a business is worth before putting the business up for sale. Business valuation can be a drawn out and stressful process, but if you know what to expect beforehand, it can be less of a headache in the long run. 

What is Business Valuation?

When business owners go through business valuation, they want to know what their business is worth. This process determines the value of a business and its assets. There are a few different factors that business advisors take into account when performing a business valuation.

What Happens During the Business Valuation Process?

There are some things that business owners should know before going through business valuation. Firstly, it’s important to understand that business valuation is not an exact science. The value of a business can vary depending on the conditions of the market and the specific circumstances of the company. 

Secondly, it’s important to be aware that business valuation can be used for a variety of purposes. Business owners may use business valuation to assess their business’s worth, to get a loan, or to sell their business.

Thirdly, business owners should be aware of the different types of business valuations that are available. The most common types of business valuation are asset-based, income-based, and market-based. Each of these methods has its own strengths and weaknesses.

The Ins and Outs of selling a business

When business owners decide to sell their business, they go through a process called “selling a business.” This process can be complicated, so it’s important for business owners to be prepared. There are four basic steps in the process of selling a business:

1. Preparing to Sell
2. Marketing the Business
3. Negotiating the Sale
4. Closing the Transaction

How Business Valuation Works

When business advisors or business consultants perform a business valuation, they use one of three methods: asset-based, income-based, or market-based. Each of these methods has its own strengths and weaknesses.

The most common type of business valuation is the asset-based method. This method looks at the value of a business’s assets. The second most common type of business valuation is the income-based method. This method looks at a business’s past and future earnings. The third most common type of business valuation is the market-based method. This method looks at what similar businesses have sold for in the past.

What can make a business more valuable?

There are a few things that can make a business more valuable. The most important factor is the business’s profits. A business with high profits is more valuable than a business with low profits. Other factors that can affect the value of a business include its location, its employees, and its brand name.

Business Valuation Do’s and Don’ts

When it comes to business valuation, there are a few things that business owners should do – and some things they definitely shouldn’t. Here's a look at some of the most important:

Do:

1. Understand what business valuation is and what it can be used for. Know why you're going through business valuation.
2. Educate yourself on the process of business valuation and how it works.
3. Understand your company's financials and be prepared to discuss them during the valuation process.
4. Stay calm and objective during business valuation – remember, it's just a business transaction, not a personal attack.
5. Cooperate with the business valuation process and provide all requested information promptly and accurately.
6. Speak with a business financial advisor to gain a better understanding of business valuation and how it may impact your business. Take any feedback from the business financial advisor seriously – they are only trying to help you get the most accurate valuation possible.
7. Keep in mind that business valuation is not an exact science and there can be some variation in the final value.
   
   

Don't:

1. Freak out if the business valuation comes in lower than you were expecting. This doesn't mean your business is worth nothing – it just means that the market has determined its value to be something different.
2. Expect business valuation to be a quick and easy process. It takes time and careful consideration to get an accurate valuation.
3. Try to manipulate or influence the business financial advisor's opinion of your business's value. This won't do you any good in the long run.
4. Rush through the business valuation process or try to take shortcuts. The more information you provide, the more accurate the valuation will be.
5. Start making big decisions based on the business valuation until it's finalized. This number is only a starting point and may change once all the information is collected and considered.
6. Get angry or defensive if the business valuation comes in lower than you were expecting. There could be a number of reasons for this – it doesn't mean your business is worthless.
7. Take business valuation too lightly – it's an important part of the business selling process and can have a big impact on the final price.
8. Expect business valuation to be 100% accurate – there is always some room for variation.

Sorge CPA Can Help With Business Valuation

At Sorge CPA, our experienced team of business financial advisors can help business owners through the process of business valuation. We offer a wide range of business valuation services and  can advise business owners on which method of valuation is best for their business, and they can help to negotiate the sale of a business. Contact us today to get started.