Every business owner should have an accurate indication of the current fair-market value of their company.
Three methods are typically used and considered in the valuation of a company. Valuation based on asset value will typically yield the lowest value, but may be the only option for a company that is losing money. In this case, the value of the company will be the value of the assets minus the debt on the company. A second method is through the use of comparables. However, unlike real estate, the selling price of a business is not recorded publicly. This method, therefore, takes a lot of research and is not comprehensive. Only a handful of comparables may be uncovered, making this the most difficult and inaccurate method. And, finally, the most common valuation method, and the most reflective of what buyers will pay, is based on cash flow. Investors are looking for certain returns on their cash investment in a business. The smaller the business, the larger the required return due to increased inherent risk. The availability of seller financing is risky, but will increase the attainable selling price of your company. All three valuation methods are taken into account in an accurate fair-market valuation. For a free Broker’s Opinion of Value on your company, please contact us today.
Such information is a key factor in deciding when to sell. An accurate valuation may also be the most important factor in a successful sale of your company. Variables such as industry positioning and company culture can be just as critical to a valuation as are the financials and profitability of the company. The seller’s willingness to provide seller financing can also have a great impact on selling price. Keeping accurate, up-to-date financial records is critical in maximizing value. Summit Partners will recast your financial statements to determine the true cash flow of the company, taking into account owner’s salary, fringe benefits, non-recurring expenses, depreciation, amortization, etc. Summit Partners has over 50 years of combined experience in business valuations. We can help determine what your company is worth today. If interested, please contact our valuation experts.