Business Valuation | How Much Is My Business Worth
While you may consider your business to be priceless, some people would prefer giving it a hard cash value. Business valuation is an essential service for every small business owner that Numerico is happy to provide.
There are plenty of reasons why you need to know your business value. Some of the most common include:
- Business planning to understand your growth
- Looking for investors
- You want to sell stock
- You want to sell your business
- You’re applying for a bank loan
Numerico has been helping small businesses with their accounting needs, and one of our most popular services is business valuation. While the idea may seem simple, the process includes plenty of ways to calculate the business value, and it can get complicated fast. An improper valuation can have many serious consequences, so it’s important to get it right the first time. Let our team of professionals at Numerico help.
How to Value a Small Business
Every accountant has their favorite way of calculating business value. The multiples method and the discounted cash flow method represent the two most used methods. The multiples method is relatively simpler, while the DCF needs an earnings forecast of five years.
Every business owner needs to have a basic understanding of at least one method of valuing a business. It ensures that you have all the necessary information for your accountant, and it’s always good to understand the financial position of your business.
What Does Business Value Measure?
Business valuation may be a misleading term for some. Your business value doesn’t include your physical assets; it only looks at the profitability of your business products or services. Capital assets represent how much cash is tied up in your business but hold no interest to investors and buyers.
What you need to show people when selling a business is how much money they’ll make in the future if they leave the business as-is.
Net Profit
The first step in figuring out the business value entails determining profit. Luckily, your Numerico accountant should already have this information since it signifies a vital portion of your business financials.
Multiples
The tricky part of valuing a business involves the profitability adjustments that show how the business will perform in the future, assuming no major changes. At the very least, you’ll need historical financial data, expected market growth, and competitors’ status and progress.
Calculating multiples requires a careful analysis of market growth, potential risk factors like supplier relationships and customer base, and many other factors. In the end, a bit of guesswork and subjectivity play a role but working with a reputable accountant means you’ll get an accurate number.
Accept the Market
Everyone wants their business to succeed, and it may be disappointing to see a market value that’s lower than you expected. However, small businesses tend to have lower multiples because they’re inherently more risky than larger, established companies.
When you want to sell your business, you aren’t doing it on your terms. If investors or buyers value your business lower than you do, you may need to accept the lower number. Ultimately, being stubborn won’t help you or your business.
Having a reliable and accurate accountant can make the entire business valuation much easier. A team like Numerico will also be able to help you find leverage to negotiate a higher price or advise you on the right time to sell or seek investors for better results.
Numerico | Helping Local Small Business Owners Sell Their Business Since 1980
If you’ve ever thought, ‘It’s time to sell my business,’ make sure to get in touch with Numerico. We’ve helped small businesses in Livonia, Canton, Plymouth, and the surrounding Michigan areas negotiate a fair selling price for their business.
We also offer a host of other business solutions, ranging from tax help to daily accounting. No matter what you need, you can rely on us. Contact Numerico today and see how we can help you value your business properly.
