- November 29, 2017
- Posted by: admin
- Category: Business plans, Sell Your Business
Knowing a business’s worth is an essential part of purchasing a new business. It is also critical to evaluating your existing business, no matter the industry. Consulting with our team of experts to get a clear look into the windows of a companies’ soul (more commonly referred to as a companies’ overall financial standing), is always our first suggestion when assessing the value of a business. Set by the National Associate of Certified Valuation Advisors, there is a modern, American set of standards within the market today for valuing a business, but sometimes it may be both easier and quicker to garner an estimate yourself instead of immediately setting up a full consultation.
An estimate should never stand in place of a true valuation of a company’s standing, where the company has received verified bids from qualified buyers in the market for similar or competitive businesses. It may not be convenient to put a company up for sale to acquire these verified bids, especially if the business owner is not actually looking to sell their company but simply wants to have an idea of where they stand financially. So how do you get this information? By following a simple method, which we’ve outlined below.
The simplest way to value a business is by giving it’s balance sheet a thorough look through. Taking a long look at the assets and liabilities recorded on a balance sheet leaves a clear path to the company’s net worth making it easily visible. Many balance sheets show both tangible and non-tangible assets, which provides an excellent guide to those interested in acquiring a company to the standing of that business. For those people who want a quick summary, and who aren’t interested in the complexities of a lengthy balance sheet, valuating a business’ worth is as easy as taking the assets that historically sell quickly and removing the value of the liabilities. This shows the company’s approximate net worth without requiring complicated formulas or excessive evaluation.
Multiplying the earnings of a company is another very popular way of estimating the value of a business. Multiply the annual earnings (or an average of the annual earnings over a steady period of time, such as a 5-year earning period) by the amount of time the company is expected to stay within the relatively same profit margin (for example, the next 15 years of operation). Depending on the buyer’s confidence and knowledge in how to decrease costs and increase profits, this is a quick and easy way of checking to see if a business will retain a positive profit over a few years.
There are many more ways to estimate a business’ value, but we always recommend checking with us before making a commitment to a new company. If you are looking to find out more about your pre-existing company, our experts are able to help you learn all that there is to know while maintaining a firm control of your company’s growth patterns.