If you are a business owner, you need to know the market value of your business. This is the only way you will be able to keep growing the business. A business valuation should not necessarily be done only when trying to find an investor to buy your business. Performing regular business valuation will help you know how you are progressing. Needless to say, a business valuation is the most useful piece of financial information about a company. The best thing is a business broker in San Diego can help perform an accurate valuation.
A business broker in San Diego specializes in determining the value of a business. This is done through a streamlined process that benefits business owners whether they are ready to sell or not. There are many methods used in a business valuation. Since every business is unique, there is no such thing as a single formula that fits all types of businesses. The valuation method used by a business broker will depend on your business.
What is needed to determine the value of a business?
While the valuation will be done by an experienced professional, it is always good to learn a bit about what goes into a business valuation. First off, let’s take a look at what will be needed.
- Interim profit & loss statement and balance sheet
- Federal tax returns for the past three years
- List of equipment
- Profit & loss statement and balance sheet for the past three years
- Lease information
- Copy of real estate appraisal if the business owns the real estate.
- Copy of tax bill on real estate if the business owns the real estate.
- The average value of salable inventory on hand
Valuation methods
As aforementioned, there are numerous business valuation methods used. Here are the three most widely used methods:
- Cash flow analysis
The business valuation expert will normalize your company’s cash flow to determine the cash the new owner will have access to. This involves taking the net income of a company and adding back interest, taxes, depreciation, amortization, and other discretionary expenses. Other factors are considered to determine the value of a business based on its cash flow.
- Comparable statistics
This method determines value based on what similar businesses have sold for. The valuation expert will consider businesses that are in the same industry and revenue range as yours. This data helps determine the PE multiple to use.
- Industry standards
This comes from the published Business Reference Guide. This contains the list of multiples that experts across the country are claiming businesses should sell for.
A business valuation is not as straightforward as you might think. That is why you must leave the valuation task to the professionals. Find a business broker in San Diego that has handled the valuation of businesses that are similar to yours in size and industry.