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Home > Blog > Business Law > Valuing Your Business for Sale

Valuing Your Business for Sale

BusinessLaw

If you are interested in selling your business, whether it remains a local mom-and-pop store or you have expanded its reach beyond Florida, you need to obtain an accurate valuation. After years of running the operations a certain way, you may not have the most up-to-date information on what the business is really worth in the modern economy. However, there are numerous business valuation methods and you may benefit from working with an experienced West Palm Beach business lawyer to determine which is appropriate for your situation. Once you have an accurate value for your business, you have what you need to go out and solicit offers.

Business Valuation Methods

There are many business valuation methods to choose from, each of which may weigh certain factors more or less than others. A valuation method that works for one type of business may not provide an accurate value for yours. In general, there are three fundamental approaches to valuing businesses: By its assets, income, or the market. Through each of these approaches there may also be distinct valuation equations.

Potential business valuation methods include but are not limited to:

  • A going concern asset-based method: Take the business’s net balance sheet value of all of its assets and subtract the value of all of its liabilities.

  • A liquidation asset-based method: Determine the net cash your business would receive if all the assets were sold and the liabilities all paid off.

  • Capitalizing past earnings: Determine the company’s expected cash flow based on records of past earnings, normalize them for unusual revenue or expenses, and multiply that value by a capitalization factor, which reflects a reasonable rate of return for the buyer.

  • Discounted future earnings: Instead of determining the average of past earnings like in the capitalized past earnings method, this requires calculating the average of the predicted future earnings and dividing it by the capitalization factor.

  • Market value: Compare your business to similar businesses that have been sold.

Combining Business Valuation Methods

In many situations, it takes a combination of valuation methods to determine the most accurate worth of your business. For instance, the earnings methods are very popular, yet they may not be entirely accurate without also studying the market value.

Depending on your business, you may also need to take into consideration intangible matters like goodwill in the community. If you have become a well-known brand in your region over the decades, this may be considered a valuable asset.

Do You Have Questions About Selling Your Business?

If you own a business yourself and are interested in selling, or you have partners or co-shareholders who also want to sell, now is the time to speak with an experienced West Palm Beach business lawyer from the Law Offices of Larry E. Bray, P.A. Gaining advice and guidance from an experienced business attorney helps you navigate the sale process from beginning to end, from gaining and evaluation and preparing for the sale to finalizing the deal.

Source:

investopedia.com/terms/b/business-valuation.asp

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