As a business owner, having a company come in and do a business valuation is important at several different points in time. One of the most common times to have a valuation completed is when you are considering selling a business in St. Cloud, MN.
The obvious benefit to a business valuation prior to a sale is to get a good idea of what the market value should be to develop a fair asking price. Pricing the business too high will result in a very slow sale. The extended length of time on the market will eventually drive off many potential buyers even if the price is dropped later.
If you price it too low, you will take away less than you deserve in the current market. While often a lower price will result in a faster sale, this is a point of concern for most owners who may be planning on a set amount of income from the sale of retirement or perhaps to move on to new business ventures.
There are three common ways to arrive at a business valuation amount. Each of these can be effective for different business types and models.
Asset-Based
A business valuation using the asset-based method is the easiest, as there is very little subjectivity. The assets of the business are added up, and any debts subtracted. It is important to consider that the assets are not valued at new but at current condition resale price.
This is a basic, simple valuation option but often ignores the value of a business through the customer base and anticipated future earnings.
Comparables
When there are similar businesses for sale in St. Cloud, MN the comparables option may be the best choice. In this model, the selling price of similar businesses are compared and a price is determined for your business.
This is a more challenging type of valuation as no two businesses are exactly the same. It is even difficult to make generalizations between regions and markets, which is why this is more commonly used only in specific industries and markets.
Discounted Cash Flow
This the most complex valuation process, but it provides a more specific value for your individual business. It includes determining the revenue generated by the business and the future expected income. This income is then discounted to take into consideration any risk or any potential changes in the market. The more stable the business and the market is for a given business the higher this valuation will be.
Using different valuations for different types of businesses is always the best option. Talk to your business advisor about the method they are using to complete the business valuation. St. Cloud MN residents can benefit from this method.
