By Aiden ArmstrongThere are many different reasons why an MN business owner may want to know the value of the business. Valuing a business can be a helpful activity when choosing specific types of insurance, when there is a need for financing or when there is a possibility or a certainty of putting the business up for sale.
As a business owner, getting the right professional involved to value a business is the most important first step. There may be a wide range of different people who can provide a number, but to have a true valuation it takes someone with expertise, experience and a very good understanding of the specifics of your business and industry.
Accuracy Matters
A business advisor is the most appropriate individual to value a business when you want an accurate number. A commercial real estate agent can provide information on property and building values, but he or she is not an expert on the business side of the equation.
A qualified and experienced business broker, in MN, will be able to incorporate objective data into the valuation. He or she will also have a good understanding of the subjective nature of worth of the business. Subjective information tends to include the specifics of your business such as the value of long-term contracts with vendors and customers as well as the reputation of the business and the overall future of the specific industry.
What are the Assets?
Determining the value of the assets of a business is a key part of the valuation process. Assets are the capital items of the business, or what the buyer will be getting that has a cash value. For asset-based valuation these assets are priced at their current market value.
In this method, the intangible items such as your customer base, your company reputation, or what your business is worth because of the position in the market or industry is not considered. Be very wary of using an asset-based valuation to set the price as it can be below fair market value.
Other Considerations
The other two options to value a business include the use of cash flow or comparables. Cash flow focuses in on what the buyer can expect to make over the next few years, what it can be expected to sell for and how reliable the market will be.
Comparables uses current businesses, like yours, on the market to establish a market value, and value a business. This method is often fairly crude, as it doesn’t take into consideration the specific assets, and differences, of a particular business. Rather, it groups all similar types of businesses together. This method is often used at the national level, rather than markets specifically in MN.
