In general, there are 3 options for finding the value of a business:
- DIY (do it yourself)
- Broker’s Estimate of Value
5 reasons people want to value a business
- Purchase or sale
- Buy-Sell agreements
- Retirement planning
- Disputes, divorces
- Gifts, charitable contributions, employee stock ownership plans
There are 3 options for finding the value of a business
1. Do-it-Yourself (DIY)
If you have interest or aptitude, you may want to estimate the value of a business yourself. This option is not for everyone, but you can get a good understanding of valuing a business by following these steps:
- Determine SDE (“Seller’s Discretionary Earnings”) How to Determine SDE
- Determine the Multiple Estimating a Multiple
- Apply the Multiple Using Multiples to Estimate the Value of a Business
2. Broker’s Estimate of Value
As Business Brokers we are trained to estimate the value of a business. We use several methods to estimate value applying statistics from databases for comparable sales. To learn about the methods we use, read How Business Brokers Estimate Value link to article #4 Contact us now for a Broker’s Estimate of Value for your business.
If the estimate of value is going to be used in a court of law (disputes, divorces) or for tax purposes (gifts, charitable contributions, employee stock ownership plans) you will need an appraisal. Appraisals are more comprehensive than a Broker’s Estimate of Value in that they require in-depth understanding of financial statements and include an assurance that data is accurate. Appraisers strictly follow Uniform Standard Professional Appraisal Practices. Generally, a Brokers Estimate of Value costs less and takes less time than an Appraisal, and is appropriate to establish a range of probable selling prices, an asking price, or a starting point for negotiation between two parties.
For what it’s worth . . .
A business is worth what someone will pay for it. That amount has nothing to do with how much money you need to retire. Lack of understanding this fundamental fact is one of the biggest and saddest mistakes we see as Business Brokers. For what it’s worth.
Seasoned business consultants that help our clients make informed decisions.