When you run a New Jersey business alongside partners and one of those partners wants to leave, you need to figure out the value of the business. You may decide to use a professional evaluator to do this, and if you do, he or she may use one of three methods to figure out what your business is worth.
Per SmallBusiness.Chron.com, an evaluator may use one of the following methods to assess your business’s value.
The historical cash-flow method
An evaluator may study your business’s past profits to help determine its worth. This helps him or her figure out what a reasonable rate of return should be when it comes to the assets your business currently has. The evaluator may then multiply your business’s typical cash flow by the anticipated rate of return to determine value. Your evaluator may also consider using something called a discounted future earnings method to assess value, which is another type of income-valuation method.
The market valuation method
Another option for evaluating your business involves comparing your business against others that are similar in size, operations and customers.
The asset-based valuation method
A third option that often works well for small businesses involves figuring out the value of your business’s tangible and intangible assets and then subtracting your business’s liabilities from that figure.
When a partner wants to leave your business, determining the value of the business is a critical step. In addition to being the ethical thing to do, it also helps prevent lawsuits stemming from a partner feeling as if he or she did not receive an adequate share of the business’s assets.