How to Value and Sell a Business
How much is the value of my business? As a business owner, you must have asked yourself this question repeatedly due to curiosity or to sell it. Whatever the reason may be, learning the value of your business is always important. The value of publicly traded companies is readily available; however, privately owned companies, including small businesses, require valuation methods to learn their fair market value. Learning how to value and sell a business can help you with this complex process.
What is a Business Valuation?
A business valuation is the process of determining the fair market value of a company and is also known as a company valuation. All areas of the business, including management, capital structure, future earnings prospects, market value, assets, and liabilities, are analyzed during its valuation.
Business valuation is generally used for mergers and acquisitions. Company owners often hire professional evaluators for business valuation. For instance, a businessperson can hire a Staffing Brokerage for Business Valuation in Maryland.
Methods to Value a Business
If you wonder how to determine the fair market value of your business, the following points can help with it.
Book Value
The first and simplest method to determine a company’s market value is to calculate its book value using the balance sheet. You can start by subtracting the business's liability from its assets, then excluding intangible assets. The leftover figure is the tangible assets of the company. Although book value is an easy, straightforward method, it is notably unreliable.
Discounted Cash Flow
The discounted cash flow is another method that can help you value a company. As the name may suggest, it is the process of estimating a company’s value or money-based investment, or cash flows, that the business will likely generate in the future. Discounted cash flow analysis calculates the current value of the future cash flow and reflects a company’s capability to generate liquid assets; however, it is not 10% accurate.
Market Capitalization
Market capitalization is one of the simplest measures to value companies and is used in publicly traded businesses. It is calculated by multiplying the total share count by its current share price. One of the downfalls of market capitalization methods is that they only account for the equity value of a company, while most businesses are financed by a combination of debt and equity.
In this situation, debt represents investments of banks or bond investors in the future and these liabilities are paid back with over time interest. Equities, on the other hand, represent shareholders who own company stocks and can claim profits in the future.
Enterprise Value
The enterprise value is calculated by summing the debt and equity of a company and then subtracting its unused cash amount from the total. To better understand this method, we take the example of Tesla. In 2016, Tesla’s market cap was 50.5 billion. It had $17.5 billion worth of liabilities according to its balance sheet, and $3.5 billion in cash. So, Tesla’s enterprise value was $64.5 billion in 2016.
Comparing Valuation and Selling Price
Accurate valuation is important, especially when negotiating a selling price, but that’s not the only factor buyers and sellers should consider. Transforming market trends can potentially impact a company’s prospective earnings, and should be taken into account when setting its price. Some acquisitions may offer strategic advantages to the buyer that are not reflected in the valuation and can boost the price.
Why is Third-Party Valuation Important?
No matter what the reason for business valuation may be, it is always important to hire a third-party valuator for this task. A professional valuator will determine the fair market value of your business with the most appropriate method.
How to Sell A Business?
If you plan to sell your business after its valuation, the following methods can help.
Marketplaces (Under $250k Profit Business)
If you have a $250k profit business, which is a small business, you can sell it on online marketplaces. Some online marketplaces where you can sell your business are BizBuySell, Empire Flippers, and Acquire.com. You can make an account on one or all of these platforms and showcase your business.
Broker ($250k to $5m in Profit Business)
If you have a medium-sized business with $250k to $5m in profit per year, consider hiring a broker to value and sell your business. If you ask about how to find a broker to sell my business, Staffing Brokerage is one of the best M & A Advisory Firms in Maryland that can help you sell your medium-sized business.
Investment Banks ($5m and Over Profit Business)
Larger companies with $5m or more profit per year are best sold through investment banks and acquisition companies.
We are Staffing Brokerage, a professional business valuator, and we can help you sell your company at a fair market value. However, our services are not limited to valuation. We provide negotiation support in mergers and acquisitions, due diligence, exit strategies, integration planning, etc. Need help? Call us now and schedule your consultation.
