As a buyer or a seller, knowing what a business is actually worth from an objective and accurate assessment is essential before a sale or an offer to buy. For the seller, knowing the value helps to set a realistic market price that will move the business and also provide a fair return on the investment. For the buyer, taking the time to value a business helps to understand a fair offer to purchase.
For any business owner selling a business anywhere in Minnesota (MN), taking the time to have a professional, experienced business broker complete a business valuation is an essential stop. Once you know what the actual value is based on that process, you can then decide if this is the right time to sell.
Different professionals may value a business based on different techniques and methods. Sometimes the choice of methods used to obtain the market value is a direct factor of the type of business. In other situations, there may be multiple options to use and the professional completing the valuation should choose the one to provide the most accurate information for the seller.
The most effective options for most small businesses will include considering the assets owned by the company that are part of the sale, but at their current cost, not at their new replacement cost. Additionally, the valuation will also consider if you own the building or rent and even what the industry trends are for predicted future sales.
In general, just looking at revenue is only a partial picture of how to value a business. These types of methods typically use a formula based on the industry that multiplies the revenue by a factor to arrive at a rough value.
As an MN business owner understands, not all the revenue or value in a business is revenue streams and assets. There are also issues to consider such as locked in low-cost contracts with vendors, ongoing contracts with existing customers for future products and services as well as the company reputation.
Even issues such as having the management team in place to stay through the transition to the new buyer can be of value and should be considered in developing a market price.
Ultimately, as the business owner, you will set the price. A smart business owner will work closely with their broker to determine a price that brings in a profit, but also ensures the business sells quickly once on the market.