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Three Methods For Small Business Valuations

Business valuation

Are you in need of a business valuation for your small or mid-sized business? Maybe you are attempting to get a loan from a local credit union or want to find ways to attract investors in the future. Whatever your reasons may be, finding small business valuations is easier than you might think and there are various ways to obtain the information. The three main ways to complete small business valuations are: comparison to recent sales of similar businesses, evaluating your business’s earning power and risk assessment, and evaluating your company?s assets. Below is a brief description of each of these techniques.

1. Comparison - Using a comparison of your business’s recent sales against other similar businesses sales is a common method of creating small business valuations. This is essentially a way for the business valuation firm to put a value to your company’s equity and make sure that it is in line with other companies like yours whether they be competitors or in a different industry but around the same size. This type of small business valuation might take longer depending on how many comparables the firm you hire decides to do.

2. Earning Power and Risk Assessment - To use this technique, business valuation services will require two main financial statements: your income statement and your balance sheet. In addition, you will need to have three to five years worth of this type of information. That will allow the business valuation firm to accurately assess the earning power and risk assessment of your business.

3. Company Assets - The most straightforward way to analyze the value of your business is to simply look at the assets. This company valuation tool is less used by the top firms because it doesn’t truly give a complex look at your company’s strengths within the market like the other strategies do. Instead, a company asset based valuation is typically used when business owners are looking to obtain a loan from a bank because it is a quick way to show how much you are worth.

Valuation results, at their core, are influenced by your need for business valuation, but it is good to remember that business value is never absolute. Instead, business value is an evolving process of measuring business worth. The three methods above are some of the most used techniques for creating accurate small business valuations today.

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