Business Valuations are Critical

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business valueBusiness Valuations are Critical

You need to know the value of your business and understand what variables influence value. Considering that your business could be the largest asset you own, wouldn’t it make sense to educate yourself about business valuations?

Is there enough value in the business to retire? Have you cooked the books too much (hiding your profits) so your business isn’t marketable? How does your company compare to industry standards? If something happens to you, do you have enough insurance to take care of partners and heirs?

The most common and accepted valuation method for the typical small business is based on a multiple of Owner’s Discretionary Earnings. However, that’s just a starting point.

Here are a few of the many things a bank or prospective buyer may look at that could influence value:

  • Are there layers of management or just the owner?
  • Is the owner the only technical expert?
  • Is the owner the lead salesperson with most of the relationships?
  • Is there limited growth potential in the industry by region or niche?
  • Is the business revenue trending downward?
  • Is the business cyclical or seasonal?
  • Are there significant capital expenditures for new equipment?
  • Does one customer make up a large percentage of revenue?
  • Do the financial statements accurately reflect business activity?

Whether you are a buyer, seller, or one of our professional contacts, call your business advisor at Apex Business Advisors to discuss business valuation details.