Business Valuations
Business Valuations
Whether you’re buying or selling a business, a business valuation is a necessary step in the process. You might be more familiar with the term ‘business appraisal’. These two interchangeable terms describe a complicated process used to determine what a business is worth.
While you’ve likely heard of a business appraisal, you may not be aware that there are different types of business valuations for different circumstances. There are some circumstances where a formal valuation is needed. In other instances, a less formal approach can be taken.
When you work with Texas Brokerage Group, we will help you navigate the various types of business valuations and determine which type of appraisal you need for your specific circumstances.
What Is Your Business Worth?
9 Key Ingredients for Pricing a Small Business Correctly
- Sales revenue
– is the business growing? Shrinking? Is it volatile year-to-year?
- Profits
– after adjusting for the owners often way too complex or obscured earnings, what profit is the business actually making?
- Customer Concentration
– Is the largest customer a large part of the total business sales? Is it the same large customer every year? What is the risk of losing that customer?
- Vendor concentration
– is the business dependent on a critical supplier? Is there a replacement supplier if something goes wrong?
- What family members
are involved in the business?
- Any big industry or regulatory changes
in the works? Good or bad?
- Financial records
– Does the profit and loss statement accurately reflect the financial performance of the business? Can the tax returns and P&L be reconciled easily?
- Is the accounting
done on a cash basis? Accrual? Are tax returns and financial statements prepared with consistent accounting principles?
- What is the current interest rate
environment? Generally speaking the higher the interest rates the lower the business value to a buyer due to the higher cost of borrowing to pay for the business.
And there are about 12 – 15 more issues that need to be considered when determining what a buyer might be willing to pay for the business. My advice is to ignore “Rule of Thumb” business pricing methods. Instead, contact us
to set up a confidential discussion with a professional. We’ll guide you through the process of determining what is an appropriate price for your business in today’s market.