So you need to do an analysis of your business. Maybe you are interested in getting a business valuation report. Why do you need this? Many first time business owners are surprised when they first learn that the reasons for having a business appraisal valuation done actually impact the results they receive but they do. This is because, at the end of the day, the small business valuations are not absolute in nature. There is no exact science governing how they are calculated.
The business valuation report will contain information about the reasons for requesting that report and the circumstances that surround the request. These two variables contribute to the premise and standard of value.
Tips for conducting your business valuation report analysis:
- Compile all your business information. Get everything you sent to the Internal Revenue Service (IRS), you company expenses, everything you can. Just get it all together at the beginning of the process. You may have more paperwork than you will need but it is better to have something and not need it than to not have it and really need it. When you are calculating your costs, remember to factor in the cost of finding the staff you have hired and how much it would cost to replace them. Employee turnover is a large expense to most companies with employees. In the United States, there are about 21 million businesses who do not have any.
- Talk to business valuation services firms. They are experts at this. Talk to a few different companies. Get a sense for what they think your company is worth. One thing you should not do while talking to these firms is get a formal business valuation report. You do not need that. You just need them to tell you what they estimate your business is worth. There are only a few times when it is worth the money to go for a formal valuation.
- Look at the market and other companies that are similar to yours. Look at the sector of the economy in which you fall. Try to access your situation, your management team and your own ability to perform in that sector. Consider your own personal contribution to the company. At the same time, have any companies like yours been sold recently? For how much? Look at what similar companies’ stock has been worth. These data can be helpful in determining how much your company is worth.
- Consider different and competing valuation methods. There is more than one way to skin a cat, so to speak and the same can be true when it comes to completing a business valuation report. You have the earnings before interest and tax (EBIT), valuation income approach and the valuation market approach. Each has good things and bad things about doing them. When you are talking to financial firms, they can give you a sense of what they think the best approach is for you but using more than one is not a bad idea.
- Try to leave your emotion at home. When you start a business, you put your heart and soul into it. If you say that you are not emotional about it, you are lying to yourself. It is normal to be emotionally invested in your business and completely impossible to not be. As true as this is, you need to leave all of that at home when preparing your business valuation report. You need to try to see the realistic potential in your business, not the potential you want to see.
Doing a business valuation report may seem daunting and difficult but it does not have to be nor does it have to be painful. If you can take your time and if this is your first time doing one, you should be thorough. If you are selling your business, the single best data point will be what other similar businesses have sold for. If you are looking for new investors, your potential success in your area will be the most valuable piece of information as will any track record you have. Take your time and do your research and your report will be what it needs to be.
