Understanding Business Valuations in the Greater Salt Lake City Area: A Comprehensive Guide

As a small business owner, you may have heard the term ‘business valuation’ thrown around at one time or another. While the valuation of your business is always of importance, it’s never more paramount than when you are gearing up to sell or purchase a business. Learn everything there is to know about business valuations in Salt Lake City, including how they are determined and the key factors involved.

What is a Business Valuation?

Put simply, business valuation is just the process of estimating the monetary value of a business. Generally speaking, business owners conduct valuations when preparing to sell, for strategic planning initiatives, when capital financing is about to occur, or if securities investing is on the horizon.

Regardless of why a business valuation may be occurring, there are three primary approaches that will be used.

1. Asset Approach: An asset approach focuses on evaluating the replacement cost or build cost of assets that the company owns in order to determine the overall value. This is most commonly seen with real estate businesses.
2. Income Approach: The income approach to business valuation focuses on using financial models to evaluate historical and projected performance for a business to determine a present valuation.
3. Market Approach: Finally, the market approach to business valuation focuses on comparing the business to other companies within the same industry and of similar size, thus narrowing down what a relative value for your business should be.

The Key Factors Involved in a Business Valuation

Given that there are a number of different methods by which a business can be valued, understanding the key factors that can bolster or hinder a valuation is crucial. While these factors can vary slightly depending upon the industry a business operates in, they are as follows:

• The rate of growth for revenue within the company and how much of that growth stems from pricing increases
• The margins, such as the gross or operating margin, that a company is putting out
• The level of reinvestment of funds that has occurred for the company
• The diversification of the company’s customer base, specifically focusing on a lack of customer concentration
• The concentration of suppliers for the business as well as any geographic diversity that may play a role
• The management team for the company and their track record
• The market risks that may impact the company’s ability to grow rapidly
• The level of scalability that a business has

What is My Salt Lake City Business Worth?

The valuation of a business can make or break a successful transaction. The last thing you want is an erroneous business valuation, which is why partnering with an accredited business broker is so crucial. With years of experience and a deep understanding of the competitive landscape in the greater Salt Lake City market, there is no better team ready to help you with your business goals. Reach out to schedule a valuation from our office to seek assistance with the sale of your business as soon as possible.