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How To Value A Business?
Business can generate high income, yet have low value. Business value determines the price for which it can be sold. Global Business Group offers professional business valuation services. We start with reviewing financial documentation, interviewing the owner and, possibly, key employees. We study business plan, industry statistics and company's marketing and distribution. We end up producing a comprehensive report with results of our analysis, containing suggested selling price and recommendations for improving the value, if any.
Business value should be as precise as possible. If the business is over-priced it will never sell and a lot of time will be wasted. At the same time you don't want to leave any money on the table.
Our business valuation services are retainer-based. Business valuation and analysis may take anywhere between 3 days and 2 weeks depending on company size.
Reasons for Business Valuation
There are many reasons why business owner may need to know value of the business.
- Settling dispute between partners
- Preparing for business foreclosure
- Transferring ownership to another family member
- Evaluating possibility of selling the business
- Preparing business for getting financing
- Preparing to acquire another company
Types of Business Value
When you're referring to "business value", you have to be specific about type of value in question. Business has its "book value", "fair market value" and "liquidation value". Any accountant can easily calculate book and liquidation value. Fair market value of the company is much harder to calculate and can be accomplished only by an experienced professional, skilled in business valuation and knowing well current business market situation.
Components of Fair Market Value
So, what are the components to be considered for determining business value?
01 Financial history. Global Business Group will review financial documentation for the last 3-5 years, when available. It indicates trends in revenue, profitability and can be compared with industry average indicators.
02 Business plan, written or verbal. How close the business plan reflects actual performance? How aggressive and realistic it is? Are product and services still as desirable as planned?
03 Owner replacement. What would happen if current owner is no longer with the company? Will it immediately crash, slowly loose its business, or continue running without major problems? How easy is it for the buyer to replace the owner. This is a very important aspect for majority of business buyers and they would pay premium for a business with low-risk transition.
04 Owner replacement. What would happen if current owner is no longer with the company? Will it immediately crash, slowly loose its business, or continue running without major problems? How easy is it for the buyer to replace the owner. This is a very important aspect for majority of business buyers and they would pay premium for a business with low-risk transition.
05 Target buyer. Value of a business greatly depends on a buyer. One buyer can see only collection of discounted equipment (liquidation value), while the other may find strategic connection with their existing business and recognize add-on value in created goodwill.
06 Sourcing and customers. How diverse are supply and distribution networks? What happens if one of the major players leaves? Does company have a uniquely targeted distribution network, or hard to repeat distribution concept? Answers to all these questions significantly affect company's value.
Owner's personality, drive to succeed, correct strategic goals and tactical steps, purpose of evaluation... The list can go on and on... Global Business Group usually takes into consideration around 30-35 parameters during business valuation analysis.