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Basics Of Business Valuation

By Sunbelt Marketing on Dec 12, 2011 12:00:00 AM

Topics: Blog

Thinking about selling your business? Is an acquisition about to take place? If so, business valuation is typically done in one of three ways: by the seller before putting the company up for sale, by the buyer before making an offer, or by both to come to an agreement. Despite this fact, going through this process is never as straightforward as it sounds.

The fact of the matter is the number that you end up with after business valuation is only one part of the actual equation. Other items that you’ll need to consider before putting up your business for sale in Atlanta include the current state of the market, the business type, the industry, overhead, etc.

Despite this notion, valuation is still useful because it gives you a place to start. Granted, the number could change from one day to another depending on market fluctuations, but it still sends a base line price. That is, a price the seller would be willing to part with the company and the buyer would be wiling to acquire it when a takeover or otherwise compulsory situation is not relevant.

Thinking About Putting Up a Business for Sale in Atlanta?

If you’re thinking about putting up your business for sale in Atlanta, there are quite a few things you need to be aware of. It’s not just a matter of hanging a sign somewhere and hoping for the best. It requires the use of a process called business valuation. And if you have a smaller business, that is one that is worth below $250 million, you might have a bit more trouble than larger companies in coming to a solid value. Small companies run into several challenges in terms of business valuation that put them at a disadvantage. For instance:

  • Smaller companies don’t always have internal controls or internal reporting.
  • Smaller companies don’t get as much media attention.
  • Smaller companies don’t have as much external analysis or forecasts associated with them.

But the difficulties for a business broker to provide a business valuation for these smaller companies might have something to do with the companies themselves, too. For instance, small businesses might not have a product or service that can be diversified beyond a small region, or they might not be able to access significant amounts of financing. Branching out to other markets is complicated and even the smallest shifts in the economy can dramatically effect a small company’s outlook.

Additionally, the issues might have something to do with the internal workings of a company. The management might not be as experienced as is required to be effective. The company might not be able to take risks for fear of losses that could permanently affect liquidity and they might not be able to place any sort of influence on regulations.

Another potential set of problems with smaller businesses in terms of business valuation is the things they may not have like adequate avenues of distribution, supplier relationships, customer relationships, brand name, customer loyalty, high quality investors, savings, and qualities that differentiate it from the competition.

The Appeal of Business Brokers

While the seller and buyer can both evaluate a business, the best method is to use a business broker to provide an unbiased business valuation. A business broker will look at things like product differentiation, company outlook, management, finances, and assets to determine worth and how much a business could be fairly sold for. It’s vital that the seller provide all the appropriate materials so the business broker can develop an accurate appraisal.

When hiring an appraiser or broker, make sure you set everything down in writing before getting started. This includes a projected budget, an estimated deadline, and a schedule for deliverables. Avoid paying for a business broker using tiered or percentage-based fee systems. This could result in a business valuation that is lower or higher than its actual worth.

Wrapping up Business Valuation

If the valuation is performed in the context of an acquisition, the broker will present how the seller’s company would perform under the new buyer’s control. This would provide estimates for day-to-day operations and allow the buyer to understand its function beneath numerous variables. This must include projected income, costs, assets, intangible assets like industry contacts and customer lists, and accounting practices. If everything is in good order, the business valuation should be quite high. However, many aspects are difficult to pin down since they involve things that can’t be properly measured like community reputation, customer satisfaction, and future projections, which can change on the tides of the market.

It is only by taking every aspect of a business into consideration that a business broker can provide an accurate business valuation. So, if you’re looking for a place in which to put up a business for sale—in Atlanta or otherwise—you will need to understand and embrace this complicated yet necessary process.

Sunbelt Marketing

Written by Sunbelt Marketing