{"id":1439,"date":"2018-07-17T11:59:17","date_gmt":"2018-07-17T17:59:17","guid":{"rendered":"https:\/\/www.sunbeltnetwork.com\/lake-charles-la\/?p=1439"},"modified":"2025-02-03T16:59:44","modified_gmt":"2025-02-03T16:59:44","slug":"the-five-steps-to-business-valuation","status":"publish","type":"post","link":"https:\/\/www.sunbeltnetwork.com\/lake-charles-la\/the-five-steps-to-business-valuation\/","title":{"rendered":"The Five Steps to Business Valuation"},"content":{"rendered":"

When it is time to sell your business, you may wonder where to start. Of course, one of the first steps you will need to take is to determine what your business is worth. Business owners often find it difficult to put a price on their company and may undervalue or overstate the value of what they have built.<\/span><\/p>\n

A business broker can help to determine exactly what your business is worth, and recommend the best asking price. Here are five steps to business valuation.<\/span><\/p>\n

1. Planning and Preparation<\/span><\/h3>\n

The first step toward determining value is planning and preparation. This involves gathering financial records and determining the reason for the valuation. The reason for a business valuation can have a major impact on the value. With this in mind, a business broker will work with you to establish the Most Probable Selling Price (MPSP).<\/span><\/p>\n

2. Adjusting the Financial Statements<\/span><\/h3>\n

The two main financial forms you will need to value your business will be income statements and balance sheets. You should have 3-5 years of these documents prepared prior to trying to value your business.<\/span><\/p>\n

Many small business owners manage their businesses on a day to day basis to reduce tax liability, which decreases the amount of income shown on the books. However, when you want to sell your business, the full earning potential needs to be demonstrated.<\/span><\/p>\n

This means that in most cases the income statements and balance sheets need to be recast before a business valuation can be reached.<\/span><\/p>\n

3. Choosing Between Business Valuation Methods<\/span><\/h3>\n

The truth is most of the time you end up choosing a business valuation method by comparing a few different ones and comparing the results. In part this is to check your method, in part it is to help you understand the true value of your business. The three valuation methods<\/a> used are Asset Approach, Market Approach and Income Approach.<\/span><\/p>\n

Factors in choosing a method include: value of company\u2019s asset base, data from sales of comparable businesses and earnings history.<\/span><\/p>\n

The asset approach measures the value of your business assets and may be used if you have a business with a lot of valuable physical assets and property. The market approach is more about comparisons between your business and similar ones, both private and publicly traded. Income approach values the business based on income potential or earning power.<\/span><\/p>\n

The method that is right for you can be tricky to determine, and a business broker can help you decide which method will be most beneficial to you when you are trying to sell your business.<\/span><\/p>\n

4. Apply the Chosen Method<\/span><\/h3>\n

Once you have chosen the right valuation method or methods, you will apply them to get the business value synthesis. This is the final stated value of your business you will use to market it. If you are using several results when determining value, experts typically use a weighing scheme to determine real value, breaking things down like 25% comparative business sales (market approach), 25% Discounted Cash Flow (income approach), 30% multiple of discretionary earnings (income approach), and 20% asset accumulation (asset approach).<\/span><\/p>\n

Of course, your percentages may vary depending on your business model.<\/span><\/p>\n

5. Reach the Final Business Value<\/span><\/h3>\n

Once you have applied the business valuation method you have chosen, you are ready to market and sell your business. To do so, you will still need the help of a business broker, an expert in not only business valuation, but marketing, vetting potential buyers, and more.<\/span><\/p>\n

Need help selling your business or have questions? Contact Sunbelt Business Brokers<\/a> for more information and all of your business buying or selling needs.<\/span><\/p>\n

Don Pippin Jr, CBI CMSBB
\n<\/span>Certified Business Intermediary\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

When it is time to sell your business, you may wonder where to start. Of course, one of the first steps you will need to take is to determine what your business is worth. Business owners often find it difficult to put a price on their company and may undervalue or overstate the value of […]<\/p>\n","protected":false},"author":16,"featured_media":11333,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"footnotes":""},"categories":[48],"tags":[],"class_list":["post-1439","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"acf":[],"yoast_head":"\nThe Five Steps to Business Valuation - Sunbelt of Lake Charles<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.sunbeltnetwork.com\/lake-charles-la\/the-five-steps-to-business-valuation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Five Steps to Business Valuation - 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