As a small business owner planning on selling your company, a business valuation in Minneapolis is a key component of being able to price correctly your business in the market.
While this may seem like a very straightforward and concrete type of activity, similar to pricing a home or pricing a vehicle, there is a lot more involved in a business valuation compared to these other types of sales. Also, and to make matters a bit more complex, there is always some subjectivity in the process. Working with a valuation company that is accurate, uses accepted practices and methods, and that is primarily involved in business sales is essential.
When a business owner asks for a business valuation, there are several things that are taken into consideration. The most basic include the physical assets of the business, which includes property, buildings, equipment, comparable selling rates, and other types of relatively concrete types of assessments.
Other factors or considerations are not as simple. For instance, the business may have a significant customer base, which is a net positive on the cost of the business. However, if the customer base is largely inactive and not current, it is not as much of a factor for pricing.
The Options or Methods
There are three recognized options for business valuation, and choosing one is often a factor of the type of business and the type of sales or services provided.
The Asset approach is a good option in many valuations. It allows the professional to look at the assets and the liabilities of the business to determine what the value would be to recreate the business to current standards. However, anything not currently “on the books” is not included in this approach.
The Market approach is more like selling a home or a car. The professional considers what other similar businesses in the market are selling for and then value your business at that rate with adjustments for variations. The problem with this is that the market has a big influence, and markets can change, but a top professional will also take that into consideration for a fair market price through their business valuation.
The income approach looks at what the business can provide to the new buyer in the form of profits. This is more of current and future looking approach to business valuation and is often used by buyers or if a seller has new products or services that are not yet on the market but are part of the sale of the business.
Knowing what type of business valuation method is being used is important, but so is working with a company with experience and a top reputation. Ask questions and be sure to be clear on the valuation process the company will use to place a value on your Minneapolis business.