Valuation is something that is critical when it comes to acquiring anything; a property such as land or buildings or a business itself. Depending on the business and the way it runs, an entrepreneur may feel the need to acquire another business or to sell the business to some other party. Therefore, having an up-to-date business valuation is important for just about any business.
There are instances that will make you realise that determining the value of a business will make it so much easier to handle a number of situations out of which buying and selling a business are only two. This also applies to when there is an increase in shareholders. You may also need debt or equity financing for expansion due to cash flow problems. In which case, potential financiers / investors will want to see that the business has sufficient worth.
There are three main methods of doing a business valuation;
The Best Choice May Be a Combination!
Although the Earning Value Approach is the most popular business valuation method, for most businesses, a combination of business valuation methods will be the fairest way to set a selling price. Do you do your own business valuation? Most definitely not. You are way too involved and personally affected by your business, so any level of valuation that you do for your own business is likely to be very biased. Further, you may lack the required understanding and knowledge on market conditions and anticipated future trends to come up with an accurate valuation regardless of the business being your own or not. The best approach would be to hire a professional ‘Business Valuator’, who will be able to advise you on the best method or methods to use.