Determining the Value of Your Business

Undergoing a business valuation is an important step for your succession plan; it can be used for a number of purposes that can range from determining a selling price to supporting the “fair market value” for taxation purposes.

historical earnings    performance future earnings potential accounts receivables contracts assets (such as inventory,    equipment and real estate) patents & trademarks capital restructure		reliability of supply    chain supplier relationships company reputation customer    concentration strength of    management team market factors industry outlook

Approaches to determining business value

1. Cost or asset-based approach totals all costs and investments dedicated to the business. This method is simple and straightforward; however, it doesn't take into account things such as the business’ competitive reputation, market share, expertise or future earnings.

2. Market Value compares your business to those recently sold. While reasonably accurate, it may be difficult to find comparable businesses.

3. Earnings-based approach is most commonly used. A price is calculated based on historical and future earnings. This approach relies heavily on management predictions of performance and normalized events.

Use professionals qualified to assess the value of your business. They can review your financial performance, provide an industry outlook and propose strategies to enhance the market value of your business.

It’s important to get a professional valuation, since some owners may grossly overestimate or underestimate their business’ value.