Buying or selling a business can be frustrating, even more so when you are trying to find the true value of it. The foundation of a good business valuation starts with four easy questions.
What are you putting the value on?
To start the initial process of a business valuation, you should be able to clearly define what it is that is being valued. A professional can help with that.
A business is in reality nothing more than a group of overall assets, which can include people, ideas, processes, products, equipment, etc. These are the things that ultimately produce an income stream. As you can see from the list above, some assets are easier to put value on than others.
Who does this offer value to?
Does your company offer value to an individual? An investment firm? Another company? Most business owners have deep misconceptions about the real value of their company.
What is the value?
The investment value is when a person may only be willing to sell his or her business if he or she is offered more money than the value they perceive it to have.
Getting top dollar for selling a business can seem like an impossible task, even for the professionals. What is the maximum value of a business anyways? No one really has a way of knowing, because the highest offer could come today, the next day or even the next month. This is similar to buying or selling stocks. It is a risky business especially if you don’t know what you are doing.
What is the fair market value?
The definition of fair market value is the price at which an asset would change hands between a willing buyer and willing seller. Americans buy and sell businesses all the time, so everyone will have a perceived value in mind. Unrealistic expectations over perceived values kill more deals than price negotiations.