Small businesses are the backbone of America. From the three chair barber shops on main streets to the auto repair and detail shops that are located in industrial parks across the city, small businesses drive a major part of the American economy. For individuals and families who have owned a business for years, it is important to understand the value of that business in case you ever make the decision to sell or to take out a loan to expand.
Using one of three different business valuation tools, you should be able to determine a fair value of your business, whether it is a small one person business or a slightly larger business with a group of employees. Without careful attention, however, you might under or over value the price of your business. By working with a professional who is serious about business appraisal services, however, you can understand the process of finding an accurate and fair evaluation.
A business appraisal involves taking a number of approaches to make sure that you get a comprehensive look at the value of your business. Small business valuation tools include a detailed look at the following:
- valuation asset approach
- valuation income approach
- valuation market approach
By comparing the value of other businesses that have the same number of employees in your area, for instance, you can begin to determine some valuation averages. By comparing your company with other companies that have the same amount of assets, you can also find other comparable valuations.
Business valuation is basically an analysis exercise in economics. The company financial information, obviously, provides key inputs into the process. The income statement and the balance sheet are the two main financial statements that are needed for business valuations. To be able to complete a proper job of valuing a small business, however, an owner should have three to five years of balance sheets and historic income statements available for the person who is going to complete the evaluation or the small business valuation software that you are going to use.
With more than 21.1 million U.S. firms without employees, it is evident that there are many individuals who might be looking at determining the values of their companies.