Approaches Used When Valuing a Business

While bringing in a business broker Orange County is important, knowing how much your business is really worth is crucial to the sale. It is only with the information on how much your business is worth that you will be able to set the right selling price and sell for maximum profit. The best news is that you don’t have to hire an appraiser for your valuation needs. Most business brokers today offer business valuation services. In this post we will be looking at the different approaches used to value a business.

Balance sheet value

A common approach used by business brokers Orange County is the balance sheet valuation method. This includes adjusted book value, liquidation value and book value. The adjusted book value is determined by revising the asset’s book value so that it reflects the cost if would take to replace the assets in the present business’ condition. This method requires that the total values be offset against the sum of liabilities.

With book value, figures from the company’s financial records will be considered a depreciated at the time of sale. This method poses some issues to the seller more so if you depreciated the assets too much to get tax advantages.

Liquidation value is the total amount that would be realized if the business assets were sold. The value here is lower because it doesn’t account for the company’s intrinsic value.

Income approach

With this approach, your business broker Orange County will consider the level of earnings that your company has using the capitalization rate, discount rate or multiplier. There are many income approach methods used here. Each method requires a level of earnings as well as conversion factor in order to translate the earnings into the business value.

Market approach

Here the approach sets the value based on the values of other businesses similar to yours that were sold. To set the market value the business broker must research the sale prices of similar businesses in the region. The challenge here is that finding a business that is completely similar to yours can be hard.

When performing a business valuation it is always good to question your business brokers Orange County on the approach they are using. Understand the pros and cons of each approach and how they affect the deal structure as well as the multiples. Most business brokers combine all these approaches so as to come up with a more accurate business valuation.

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