Working in the business world can prove exciting and provide a sense of accomplishment. Over the years that you have run your company, you may have experienced many ups and downs that allowed you to work hard and gain the sense of success you so desired. Of course, you may have reached the point in your life when the time has come to move on from your company, and as a result, you may wonder about the best manner in which to value your business.
Because you could choose from various methods when it comes to business valuation, better understanding some of your options could help you make a decision. As each method may result in different outcomes, you may want to assess the specifics of your business during the valuation process.
Business vs business
One way to potentially find the value of your business is to compare your company to other similar companies in the same line of work. When an individual or entity hopes to acquire your company, he or she may attempt to compare your business to smaller companies with less value. As a result, your business’s value may come in at a lower mark.
On the other hand, you may feel that your company deserves comparison to more well-known and successful businesses in order for the value of the company to seem higher. Because the possibility for discrepancies exists in this method, you may find yourself wondering if it is the best option for your circumstances.
Assets and liabilities
One of the simpler ways to determine your business valuation involves merely determining your assets and subtracting your debt liabilities. While this option may prove the easiest, it may also result in the lowest value for your company. This method only examines the hard numbers associated with your business at the time of valuation and leaves out any Good Will or the difference between the market value and your net assets.
Discounted cash flow
Your company’s cash flow can play a considerable role in valuation for individuals looking to buy your business. With this method, your future cash flow estimate will provide the potential buyer with ability to estimate the future worth of your company. The buyer will then likely calculate in a discount in order to account for the time value involved.
Other methods for determining business valuation also exist. Because this endeavor can cause some complications, you may wish to garner additional information and legal advice on these and other methods if you choose to sell your business.