The value of any business is never absolute. It has a number of dependencies and many factors that influence its worth. The results are also influenced by your need for business evaluation. Businesses are evaluated either when the owner is planning to sell, or you are planning to buy a business if you wish to terminate a partnership, when you plan on taking your company public. Sometimes businesses are evaluated for tax purposes, mergers, and acquisitions or for taking on an investor.
Well, the reasons are plenty and it’s evident that without establishing an accurate value of its current worth, it’s impossible to negotiate a fair price for your business. Without professional business valuations, you might end up with a price that’s unrealistically high (that turns off potential buyers) or a price that is unnecessarily low. There is, therefore, an increasing need for accurate business valuation in today’s life.
Here’s how accurate valuations can help:
Adds credibility
A property appraiser is generally an expert in business appraising techniques to quantify the key aspects of your business and present you with an overall figure. They write up a detailed report explaining all the facts that they gathered while analyzing your business. This adds credibility to your ‘asking’ price. The buyer is presented with accurate information and all the facts that add up to that price.
Sets the initial price
It is important to remember, however, that when it comes to negotiating with an actual buyer, the price set by an appraiser is just a starting point. A professional evaluation tells you what an average buyer should pay for your business. If a particular buyer has a strong strategic reason for buying your business, he may be willing to pay more. While another prospective buyer might be interested in buying only certain assets to augment his or her business and may not be willing to pay as much. It’s hence important to set an initial value and size up the buyer’s intent of purchase so that you get a fair price for your business.
Cash flow and assets
Different buyers have different requirements when they buy a business. The essential factors that buyers are interested in are the earnings which include the net earnings after all expenses and the cash flow. The buyers expect your business to provide a stream of cash flow that is predictable, steady and high. It’s also important that your business has the ability to replicate this kind of cash flow in the future too.
Some tend to look at it in a cut and dried way and are interested in the verifiable assets of the business. These assets include the real estate, the equipment, patents, trademarks and other things such as inventory, customer lists and the contractual relationships that you as a business have established in the market. These assets are looked upon as a kind of protection to be used (generally sold) when the earning stream is dry.
Documents the business assets and financial health
A professional appraiser maintains accurate documentation of all his observations including the physical assets, the financial health and all the other factors that add up to the total value of the property.
If you are looking for accurate business valuations, we can provide you with professional estimates taking into account all the factors influencing the price of a property – whether for sale or for purchase.