Are you planning to sell your business? As a businessperson in the process of selling your business, one challenge is setting the right price. Determining the worthiness of your venture can enable you to attract the right customers who can afford your rate. To achie this, you need to conduct a business valuation. Assessing your business value is not only essential for setting its selling price but also crucial in tax payment.
In fact, it is recommendable to have an up-to-date business value statement as it can help you in your planning. Either way, right valuation relies on the techniques you use. However, as a first timer in this arena, it can be a challenge to determine which methods to use in valuing your business. Here are three ways of valuing a business for sale:
Market value approach
Your business does not exist alone in the market. You have competitors that compete for the same customers. One thing that is common in the business world is that ventures in the same industry use similar approaches and tactics to attract customers and drive sales. Hence, their value range within the same metrics. In this essence, market value approach involves setting your business price and value by comparing it with recently sold ventures. If you are selling let’s say a cosmetic business, you can compare it with a similar business that was sold. If that business went for $200,000. So, you can price yours at $205,000 or $199,000 depending on various factors.
This method involves assessing the assets in your business. It is about checking the amount you have invested in your business. The asset-based technique is suitable for valuing companies and corporations. If you are running a sole proprietorship, it is hard to determine how much your business owns as there is no separation between your property and those of your firm. Having said that, this approach involves assessing the assets and deducting liabilities. Hence, you can use it to assess your business for sale if it has separate legal entity registration.
Earning value approach
As you know, businesses are founded in perpetuity. No one establishes a business that will last for a season or two. This notion is applicable in the earning value. Here you determine your business value by considering its potential to create wealth in the future. This involves using past records to draw future projected cash flows.
In a word, using the following valuation methods can help you to come up with the right price for your business for sale and avoid making a loss.
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