A business valuation is used to determine the current market value of your business. While it is often used to determine the sale price, savvy business owners often have it done 1-4 years before the sale of the business and use it as a planning tool to increase the future value of the business.
The valuation or “opinion of value” is also used in closely held businesses to determine tax liability issues, succession planning, divorce settlements, partner buy/sell agreements, and mergers and acquisitions. Other reasons include the need to secure capital, take on new partners and focus on enhancing business value.
Having an “independent opinion of value” will often lead to a higher sales price for the business. Potential acquirers will put more value in an independent valuation. The three generally accepted valuation methods include asset valuation, comparison to similar sold businesses and free cash flow often referred to as seller discretionary earnings (SDE) or Earnings before interest, taxes, depreciation and amortization (EBITDA).
Once the valuation is prepared you are ready to confidently move forward with accomplishing your goals. Inc Magazine wrote an interesting article on the benefits of getting a business valuation.
Matchbooks is a virtual bookkeeping, consulting company and business broker. We help companies like yours make more informed decisions, increase cash flow and improve daily operations. For more information, contact us at consulting@matchbooksusa.com.