subject: How A Business Evaluator Appraises Your Business [print this page] A business valuator executes a set of procedures to determine a businesss worth. The worth of a business may mean different things to each individual. If you are a business owner, you see the value in the business's connection to the community. To an investor, though, the businesss value lies in the income of the enterprise.
Moreover, economic conditions affect what people think of a businesss worth. For example, if jobs are scarce, business buyers enter the market, causing an increase in competition that results to higher business selling prices. Factors surrounding the business also determine what the business is worth. For instance, there is a difference between a business that is part of a well-planned marketing effort to attract buyers and a sale of business assets at an auction.
Therefore, the business value is an expected price the business sells for. The price of your business may vary depending on who determines the business value. A buyer may want your business now because it coincides with his or her goals. Another buyer may be interested in your business because he or she gets to purchase it at the lowest prices possible.
There are three methods through which an expert and professional business valuator measures what your business is worth. The asset approach sees the business as a set of assets and liabilities which determine the business value. It looks into how much it costs to create another business like yours that produces the same economical benefits for the owners. The business evaluator has to figure out the assets and liabilities, choose a standard of measuring the value, and determine what each asset and liability is worth.
A business evaluator may also opt to use the market approach to study the signs from the real market place. This method looks into what other businesses similar to yours are worth. If you plan to sell your business, the business evaluator checks the market for what other businesses like yours sell for. The market gives the business valuator an idea as to the business price, which is known as the fair market value that buyers are willing to pay and sellers accept.
The income approach is another method used by business valuers. It focuses on the core reason for running a business: making money. It looks into the economic benefits you receive once you invest time, money, and effort into business ownership. It also determines the risks involved.
