HOW TO VALUE A BUSINESS
What do you think your business is worth?
The answer might not be as simple as you think.
Quick Valuation Process
- Total all of the company's assets, such as all of the inventory and equipment.
- Ask for a valuation from Strategic Business Brokers Group. Estimate the potential value of a typical business in your industry at a given sales level.
- Calculate the company's adjusted earnings over the last three to five years.
- Review your company's enterprise value in relation to its location, earnings, infrastructure, history and numerous other considerations - while analyzing the final amount.
Business Valuating Methods-
- Asset Approach
- Market Approach
- Income Approach
The formula for Calculating Net Cash Flow-
N = Net Income
D – Discretionary
SDE – Sellers Discretionary Earnings/EBITDA
Why is it Necessary to Calculate Net Cash Flow ??
Cash flow analysis is essential for some reasons. It sheds light on the operational effectiveness and financial stability of a business.
- Cash flow analysis evaluates a company's liquidity. It provides information about the company's ability to pay financial duties.
- Compared to net income, cash flow offers a more realistic picture of a business's operational performance.
- Stakeholders and investors often see a company's cash flow as a critical indicator of its stability.
How to use a Business Broker/ M&A Advisor during the Valuation Process -
- Meet with SBBG for the initial discovery to learn in depth about the Company.
- Provide SBBG with the Company financials. Each year will be analyzed with the goal of identifying the SDE/EBITDA.
- Following the discovery and financial analysis, you and your broker/advisor will collaborate to determine the official business valuation.
Shortcomings of the Quick Valuation Process-
- Simplified metrics and assumptions usually form the foundation of quick valuation methods. They need more information, which may lead to accurate assessments.
- Quick valuations often need to pay more attention to the value of intangible assets. These include brand reputation, customer relationships, intellectual property, and a skilled workforce.
- Current market scenarios, like market volatility, industry trends, and economic changes, can significantly impact a business's value. Sometimes, rapid valuations don't consider these factors.
Final Words-
- Business valuation is the process of determining a company's economic worth. It gives its owners a fair assessment of its value.
- When a business owner decides to sell all or a part of their enterprise or merge with another, they usually carry out a business valuation.
- More justifications could be the desire to raise capital through debt or equity. It is also useful when there is a need for a more detailed tax analysis, or the goal is to grow your company's shareholder base.
