If you’re a small business owner, you might need to get a valuation done on your business. This evaluation of a company’s worth can show you what your assets are and what kinds of things you could potentially do with your business. This includes things like bringing on new partners. However, if you don’t know how to properly value a company, you should not try to do it yourself. Instead, bring on a professional. These services are trained in things like how to determine the valuation of a small business. They can do a community needs assessment and figure out exactly what your company is worth. While you might think it isn’t worth the time, that you can just look up how to check company valuation, it is the right thing to do for your company’s future.
Bringing on a professional also means that they can tailor their process based on the type of company you have. Depending on what field you work in, you might need to consider certain things you wouldn’t think of on your own. A professional can take care of all of that for you.
What is business valuation and why do I need to think about this?Are you thinking about starting a new business? Do you already own a small business and want to expand? If you are, you are not alone. There are about 26.5 million businesses operating in the United States. Nearly 98% of these businesses are classified as “small” meaning they have fewer than 500 employees. This is what politicians are talking about when they describe small businesses as the “drivers of the economy.” If you are just starting the process or if you are looking to expand your start up, you may have heard about “small business comps.” This is how your business will compare to other similar companies or stores and is part of the business valuation process.
Many companies get a business valuation analysis when they want to get investors or potential partners interested in your business. Before you start the process you need to determine and work through the reasons your need it done. The other part of this is assembling the required information to get the ball rolling.
There are several methods used in looking at small business comps and its valuation. Here are some steps to get the right valuation for your business and situation.
Try the cost to create method of small business valuation. Take a fresh look at what you do and how you do it. If you had to recreate your business from scratch, how much would it all cost? This includes everything from redoing your original marketing plan, finding and getting space up and running, finding and hiring your staff and everything else you did when you started your company.
Consider the market multiple method. In this process, you look at other businesses that are similar to yours. If you know of one that was sold and you can extrapolate from that sale how much your business is worth, that is one way to approach your small business comps. Say a store twice your size sold for a half a million dollars. You can get from that your company’s valuation.
Consider variables that cannot be measured in dollars and cents. If you have a track record of starting successful businesses, that increases the valuation of your current endeavor. There are a lot of things involved in running businesses that have nothing to do with accounting and more to do with psychology. When business appraisal services look at your business, they will consider more than what you bring in and put out. They will look at your management, the products or services you provide and your customer/client base. If you are selling a product or service that you know is needed in your area, that can inpact the small business valuation, also. Consider an area that has a large student population and little in the way of public transportation. A company, like Uber or Lyft, may work very well there while it might not be worth as much in a rural area.
Consider bringing in outside experts to do your small business valuation. When you are dealing with small business comps, it if often a very good idea to bring in an outside firm who has experience doing these analyses on companies and can do that with an objective eye. No matter how hard you try, you are emotionally tied to your business. Given how much you have put of yourself into it, it is impossible to not have your heart and soul in it. Therefore, you should get the opinion of professionals who are not so emotionally invested in it. This is not to say that your estimation of the valuation will be too low or high, just that many people include in their calculus the potential they see in the company, which may or may not translate into real value.
If you have already started your business, are looking to expand it or want to start a new venture, knowing how small business comps and valuations work is always a good thing. You can then more accurately access your progress but know when you need to seek assistance from outside experts who are not as emotionally tied to the business.