How To Valuate A Business

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Whether you are buying or selling a business you will have to be able to value what the business is worth. As a buyer you want to get your money's worth and have a successful business in the future. As a seller you want to get what the business is worth, especially if you have put blood, sweat and tears into it. These points of view can be very different and that is where you have to know how to meet in the middle for both buyer and seller to get a good deal.

Determine the value of the assets that come with the business. The assets are the supplies and equipment that are used to produce a service or product that is being sold to the customers or clients. All of this is added up to find the value of the assets, subtracting for the current value of the items. For example, if there is a pizza oven listed as an asset and it was purchased new, the value will have decreased with the use and wear and tear on the oven. If the business is not making a profit the assets may be the determining value of the business.

Calculate the profits and losses of the business from the past, currently and projected future. These numbers will give an idea of what the future profits and losses of the business could be. This is important information for the buyer to know so he can determine if the business is a good investment. Add the value of the assets to determine the total value.

Compare the prices of other like businesses in the area that have sold and are for sale. This is a good determination for the seller to find out what businesses are selling and for how much in the same area. If there are businesses that are higher priced and have been on the market for a longer time, the seller may want to consider pricing her business on the lower end to sell quicker.

Using the above steps the seller can determine what his business might be worth and the buyer can determine if she is making a good investment. There are no set rules on valuing a business because there are so many variables for each situation. All accounts should be taken into consideration for both seller and buyer when valuing a business.

Tips

  • Business analysts can be hired to help sellers and buyers properly value the business.

References

Resources

About the Author

Michelle Epperly is a freelance writer based in Southern Oregon. She has been writing on a diverse range of topics since 2005. She has written articles and SEO content specializing in nutrition, real estate, parenting and life coaching.

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