A business valuation is usually done when a company is either going to put its business on the market, or it is considering putting its business on the market for sale. Why do valuations need to be done before a business goes on sale?
Because it is important for companies to ascertain the value of their business, to determine how much it is worth. If you were to sell something, you would need to know what the item is worth before putting a price on it, right? It’s the same concept applied here. You need to know the importance of valuing your business.
The valuation process of a business is done to help companies eliminate guesswork. This simply means the process is there in place to help companies avoid the classic mistake of either pricing their company too high or too low, resulting in a sales impasse between the buyer and the seller.
Valuations are used by the financial market participants to determine the price that they are willing to pay or receive to affect a sale of a business.
There are seven factors that will determine the value of a company:
There are three methods of valuing a company’s business:
As a business owner looking to sell your company, you need to avoid the classic mistake of using a one-size-fits-all approach just because you are trying to get your company valuated as quickly as possible. Rushing into things is never a good idea and the mistakes likely to be made along the way may cost you more than you think.
Business owners should also try to avoid the mistake of valuing the business for far more than it is worth. Get the valuation done professionally right from the beginning and save your business the time and money right from the get go.