Small business owners often do not have any reliable way to determine how much their company is worth. There is always a ceiling for valuations, but the number is important for tax purposes, investments, and estate planning and inheritance situations.
Business valuation involves getting an assessment of finances and intellectual property a company owns. Calculating how much a small business is worth can be tricky. Most small business owners try to come up with an estimate on their own, only to find out that the processes involved can be complicated and unreliable. But there can be a method to madness. You can hire an expert evaluator, like the professionals working at Corporate Business Solutions. In addition, it’s worthwhile to know that the business valuations involve the following:
Recreate Costing – One of the popular tools used to value businesses is this method called cost recreation. This involves sit calculating all costs it would take another person to start the owner’s business. Costs will be replicated for marketing, buying inventory, office rent or lease and hiring staff. This method is relatively easy to do, but it is not necessarily scientifically accurate.
Market Comparison – A more investor-friendly approach is the “market principle” method, where a company is valued based on how much other companies of similar size and capacity are worth based on numerical figures. For example, if a business twice the size of yours sold for a million in the market, you can value your company based on that.
Multiplying Earnings – This method values businesses based on current and future earnings. If you expect your profits to increase, you can value your business by taking into account future expected increase in earnings.
Business valuations can be complicated for small businesses and should be done by a certified business valuation expert with the proper valuation credentials recognized by the industry. We highly recommend hiring professionals to get an accurate valuation of your business who have the proper credentials. The pros at CBS Corporate Business Solutions can help your small business obtain a valuation that investors can trust.