Valuing a company is tricky business. For small companies looking to get an appraisal before sale, this is a black and white view of the years of stress, struggle, and effort they have put into growing a business. It can be an emotional process for owners and their families. The best way to start is to talk to an accountant.
Now, a Business Broker or Certified Business Appraiser may have a different opinion. But they are going to provide different information than an accountant. An accounting partner will verify the income of your business and evaluate your business ‘on paper’. Something a potential buyer is sure to do. If your books aren’t in order, that can be a red flag to potential buyers, as you may not even know how profitable your business actually is. In addition, an accountant is invaluable when you are concerned about the tax ramifications of selling your business.
Other professionals take the ‘on paper’ value of your business into consideration, but, much like home appraisers, are more focused on the market value of your business. Businesses are often valued at a multiple of annual revenue or earnings, assuming that current efforts will continue at a similar or growing rate in the future. Be careful with this type of analysis. Many changing factors can affect future revenue or earnings, most of them outside a business owner’s control.
Ultimately, like any other asset for sale, a business is worth what a buyer will pay. So get your books in order and start accounting for everything, from inventory and equipment to staff and clientele.