Business Valuation

What is a Business Valuation?

A business valuation is an assessment of what a business is worth and what it is likely to sell for when offered for sale.In the calculation of value, Business Brokers reverse what CPA’s do which is to reduce the business owner’s tax obligation by writing off as much as is legally possible. Businesses for sale are valued based on a multiple times their net profit and overall benefit to the owner. “Owners Benefit” is routinely calculated by recasting the business tax returns and adding back certain expenses that are classified as indirect income or benefits to the owner.At Business Broker World our experts use their valuation experience, training, education, and a variety of online valuation tools including business valuation software andthe industry’s Business Reference Guide to produce the most accurate valuation.

Why is a Business Valuation important to the sale of a business?

  • It tells the Seller what they can expect to ask for their business based on the business category,the industry,and the financial books and records.
  • It tells the prospective Buyers at a glance about the background to the business, an overview of the business’s financial situation and what they can expect to pay.
  • It helps buyers remove certain guesswork,and save time in coming to a buying decision.
  • It can be a valuable tool for lenders in making their loan decision should buyers choose to apply for business funding.
  • When a business is being purchased by a corporation or partnership involving investors and/or partners a Business Valuation can be a vital aid in the investment and purchase process.

Business Broker World valuations fall into five primary categories:

Business Sales
If you ask most sellers to place a value on their business, they really have no idea nor do they have the “know how” to create a valuation. Consider the average seller who posts their business for sale online. They have a number in mind but have no basis to justify their asking price. Unfortunately, most sellers either under price their business out of desperation or alternatively completely overprice it because they have no idea how the business valuation process works. This is where Business Broker World can save the seller from making a huge valuation blunder and even leave thousands or even tens of thousands of dollars on the table. Make the wise business choice, have your business appraised by a professional.

Tax Audits
The title speaks for itself. When a business is audited by the IRS, if a large amount of taxes are owed and the business does not have the money to pay, a business appraisal including the depreciated value of FF&E may be needed to determine if the business assets can satisfy the amount owed, if sold. These types of appraisals are highly specialized and not very common.

Partnership Buyouts
There are many variables in business partnerships. Some work out; some don’t.Most partnership agreements will include a mutual buy sell condition. That means that either partner(s) has first option to buy the other (or others) out in the event of a business dispute, death, retirement or to pursue other interests. In such cases, the partners want to know how much the business is worth so that the dollar amount of the buyout is assessed fairly and accurately.Remove the stress, tension and valuation guesswork. Have the business appraised by a Business Broker World professional.

Estate and Divorce Settlements
Death and divorce or common reasons to have businesses appraised. In the case of death,a deceased business owners estate must be settled. The executor of the estate must know how much the business is worth in order to distribute the appropriate fair share of equity or ownership of the business to the surviving family members or heirs.

Similarly, in divorce cases, spouses are likely to want to know the value of any businesses they own,so a fair dollar settlement can be agreed upon. There is nothing worse than feuding spouses in divorce situations. Tensions and emotions can run high. Make the right business valuation decisions. Have the business appraised by one of our experienced valuation professionals.

Asset Sales
The reality is that not all Businesses succeed. Statistically, up to 80% of all small “start-up” businesses go out of business in the first 2 years. In the US, only 1 non franchised privately owned business out of 10 is still in business after 10 years. Therefore, owners of failing businesses or businesses that they have already closed sell for “asset value.”

Asset value often represents what the furniture, fixture, and fittings (FF&E) in addition to signage, vehicles(is any),and inventory may be worth. Typically, the seller’s books show a loss and they just wants out. In order to make the best of a bad situation, it can be a huge benefit to an owner to have the assets appraised so they can be sold for the most money.

Make a smart choice! Have your business assets valued by a Business Broker World expert and minimize your total loss.