Thinking about getting a business valuation? If so, then you have made the right choice. It is always a good idea to keep on top of how much your business is worth. It doesn’t matter if you are looking to sell with a website broker or not, understanding the value of your business is essential. When it comes to a valuation, most people don’t really know what the process entails. So, to help out, we are going to cover the basic steps in which valuation companies use to obtain the value.
Gathering All Of The Necessary Data
The beginning of the process start off with getting all of the required information from the company and also research all of the required industry specific information. They will request all of your financial documents as well contracts and other important paperwork. Once they have all of that gathered, they will most likely then start to ask general questions about the business. This can range from daily operations, competition research that has been completed, marketing details, financial performance, administration processes, future expectations for the company, and much more. The more information they are able to obtain, the better valuation they will be able to do, so don’t hold anything back.
After getting as much information from you as possible, they will most likely do their own independent research to confirm everything and get more industry specific information.
The second part of the process is the analysis. They do this to compare the company to other competitors or to the industry in itself. This helps to understand what factors made a difference in your business’s past and what kind of future it’s looking at. This part of the process may take a while since they will need to go over a lot of different information and compare it to other companies. Once this process is complete though, you will have a much better overall understanding of where your company is and where it is headed.
Use The Proper Valuation Approach
There are 3 main approaches that valuation companies will use, the income approach, the market approach, and the asset/ cost approach. Each approach looks at different aspects of the business.
The income approach looks at the overall income or cash flow of the business. This is usually the most important as it reveals the company’s true potential and also figures out the risk associated with the overall revenue. All of your companies financial aspects will be taken into consideration.
The market approach is all about figuring out how much other similar businesses are worth and then comparing them to yours. By figuring out what other people are buying similar businesses for, the valuation company is able to get a ball park figure of how much the company is worth. Of course, not ever business is the same, which is why they will most likely compare the details of other companies and yours to come up with a more accurate value.
The asset/ cost approach is about how many assets the company has and what they are worth. Offices, furniture, technology, etc can all be considered assets. This is one of the easier approaches and usually doesn’t take long at all.
Once all of this has been completed, the valuators will be able to provide you with an accurate amount of how much your business is actually worth. If you are looking to sell the business without website broker, this is usually a ball park figure that you can use to help you when negotiating with potential buyers. So there you have it, the basic valuation process that is used.