subject: Business Valuation [print this page] Business Valuation is the most important step in the process of putting your business for sale in the market. Businessmen can take help of business broker, accountant, lawyer or any other professional to get through with the process of Business Valuation.
In simple terms Business valuation is the method of attributing the right market value to a going concern business entity. It can be done through different ways. Thus, you must take help of a business broker to assist you with the task so as to know and apply the correct method of valuation that best suites your business for sale.
It is important for any Business organization to value its business before putting it for sale. Potential buyers go as per the estimated/ calculated value of the business in comparison with competitive firms in the market.
As I have already mentioned that there are various techniques of business valuation, let us try and understand the most widely used ways which include the following:
1.Asset approach
2.Cash Flow analysis
3.Price earning Ratio
Asset Approach
Asset is anything which is of value to a business organization. So, while evaluating a business for sale, one can follow the technique of asset accumulation to ascertain the true value of ones business. Asset accumulation means finding out the value of all assets after paying off all liabilities. This is a relatively simple and fast way to value a small business by determining what the sale or liquidation of all the businesses hard assets (equipment, inventory, receivables) would generate.
Cash Flow Analysis
It refers to the adjustment or recasting of a business's most recent annual profit and loss statement. Cash Flow statement is prepared after adding back or subtracting from the net profit some non essential or discretionary expenses which could e avoided without posing any harm to the normal running of the business. It helps to calculate the actual earning power of the business.
Price Earning Ratio
Price Earning Ratio is calculated by division of price and earning with companys share or stock in market in the numerator and earning per share in the denominator. Earning per share is multiplied with the income of the business which gives the value of the business.
It is important for a businessman to understand business dynamics and apply the right approach of valuation for his business for sale. It would help him win a potential buyer because he would then be able to satisfy the buyer by charging the correct market price for his business.
This reminds me of yet another essential thing to be kept in mind while evaluating ones business and that is searching and comparing prices of competitive businesses in the market. Internet is a common and the most useful tool in gaining knowledge regarding this arena.
So, after valuation your business is ready to be advertised for sale in the market so that potential buyers may contact you and you can get a profitable deal.
