It’s important for small business owners to know who much their company is worth. To put it simply, it is worth what the highest bidder is willing to pay for it and no more or no less. Nevertheless, by taking all the relevant factors into account, the business can be positioned for the best possible deal.
The first step is to have a business valuation prepared for the company. This includes a comprehensive report, and is a good starting point for negotiations.
Most of the time potential buyers conduct their own due diligence of businesses they are interested in. They may rely on professional appraisers who use different techniques and come up with another valuation. For example, a buyer may seek a valuation based on fair market value, intrinsic value or a different standard might be applied. Internal factors that are unique to the business are taken into account, such as the company’s financial position.
This is where other external factors can also come into play. Some of these issues may reflect the economy, market demand for the company’s products or services, or the health of the industry as a whole. Low demand does not necessarily mean reduced profitability.
The value of a business can also be affected by interest rates. When interest rates are rising, it can have an adverse effect on cash flow, since outstanding debts can result in higher charges. Therefore, it might make sense to sell a business when interest rates are relatively low.
A professional business valuation can be extremely helpful to in analyzing many factors, including:
- The overall strengths and weakness of the business.
- How to enhance the value.
- How to keep taxes to a minimum.
- Where to find potential buyers.
- The best time to sell.
- The value of tangible assets, such as real estate and equipment, as well as intangible assets, such as patents, trademarks and non-compete agreements.
For more information about external factors in business valuation, and how to get your business valued, call Filler & Associates.