Business owners often ask, “How much is my business worth?” The question may be irrelevant and a much better question is: “What is the most I can get for my business under the most favorable terms and conditions?” Answering this question in a more practical manner requires following one of two approaches. The first is standard valuation methodology performed by your CPA or a professional business appraiser and is often used for purposes of gifting, estate taxation, and general planning . The second approach is that of the marketplace and must be used when you decide to sell to a third party.

Please realize that business valuation is a process that is not absolute. There are a number of methods of valuing a closely held business, each involving a variety of factors and each rendering a different value. I recommend using several techniques to arrive at a valuation range of fair market value. The actual “sale price” of a business should not be confused with fair market value used for transferring ownership to a key employee, co-owner, or child. Not that fair market value and sale price are unrelated, but fair market valuations proceed on the hypothetical assumption of what a willing buyer would pay a willing seller when neither is under any compulsion to buy or sell. As such, it only an educated guess.  

If you have decided to sell to an outside third party, a valuation can serve as an excellent starting point in determining your sale price. But you must gain access to how the market is really going to view your business. You must go to the marketplace and utilize the experience of a business market specialist. Depending on the size of your business and the type of purchaser interested in acquiring it, you will want to utilize an experienced business broker or investment banker.

 

 

 

Tags: business exit plan, business planning, Business Valuation, sell your business, transfer of business ownership, value of your business