Nine years ago this company was just a dream. At that time, you made the decision to open a small gift boutique. You had owned your own business before, but that had been an aerobics studio, and the schedule had been more flexible. The location was open when you were holding classes, closed when you were not. During the years you ran the aerobics studio you loved going to work. You had a steady group of clients who signed up for monthly memberships again and again. It was only the birth of your daughter that made you sell that business.
When your daughter was first born she was able to come to class with you. By the time she started full day kindergarten, however, your schedule needed to change so you sold that first business. Then, nine years ago you took the leap again and opened the gift shop. Your daughter was older and was able to drive and you found yourself with enough time to go back to work full time.
The gift shop has been a success. You again have a large number of customers who return to your store again and again to check out the new merchandise and to buy items for themselves and to buy gifts for their friends. Now that your daughter is in college, however, you want more flexibility. You want to be able to drive the 50 miles to go take her out for lunch without having to worry about who is going to cover the hours at the store.
Unlike the aerobics studio, the gift shop has to have set hours. Hours that are predictable for customers who want to take advantage of the front door parking, run in and make their purchase, and be on their way. So, you have decided to take inventory of the business itself, use your business valuation resources to determine a selling price, and list the gift boutique for sale. Even though the aerobics studio and gift shop are very different from each other, the process of how to value a company is the same. Gathering all of the necessary financial information is the same. Examining the profits from each year is the same. Attempting to find comparable businesses that have sold in the last few years is the same. And, the difficult task of finding an asking price that is neither too high nor too low is the same. It is a lot of work, but you know it is important to seriously spend the required amount of time asking yourself, “How do I go about calculating my business worth?” If not, you may not profit from your efforts from the last nine years.
When Is It Important to Know about Calculating My Business Worth?
For most business owners, the only time that you need to determine a business’ worth is when you are preparing to sell that business. The company valuation process, in fact, is the key component to determining the selling price for a company. It might be nice to know the value of your business at other times, but realistically taking the time to determine the value only happens when it comes time to sell.
What Do I Need to Know about Calculating My Business Worth?
The two key starting points toward establishing the value of a business are determining why you need business valuation and assembling all the required information. This sounds simple, but it is a complicated process. If, for example, you are selling your business the process is complicated because you want to make sure that you thoroughly examine all of the necessary documents.
Why Is It Important to Know about Calculating My Business Worth?
The business valuation process is important because without it sellers cannot justify their asking price. Business valuation is obviously an economic analysis exercise. As such, it should come as no surprise that the company financial information provides the key components for the process. The two main financial statements you need for business valuation are the income statement and the balance sheet. To do the most thorough job of valuing a small business, it is necessary to have at least three to five years of past income statements and balance sheets available.