6 Tips for Getting the Right Small Business Valuation for Your Company
Finding an accurate valuation for your business may be more challenging that you think it should be. As counter intuitive as it may seem, your small business valuation is not absolute. It can be impacted by the reasons you are doing the small business valuation. The key elements in determining your business’s value are how you plan to measure it and what your circumstances are for calculating it.
6 Tips for Determining Your Small Business Valuation:
- Compile your data. The first thing most small business valuation experts say you need to do is get all of your data together. Get all of your financial data together and you can start working with small business valuation services companies to get to the heart of what your company is actually worth. The assets your company has on hand will factor into how much your business is worth.
- Compare your company to others. What are similar companies worth? When you look around at companies that are the same size and offer similar goods and services to your own, you can get a decent idea of what your company is worth. These will not give you an exact amount but can guide your calculations and help when you are talking to outside investors. If you know someone has recently sold a company that is very similar to yours, how much was that company valued at? By paying attention to your competition, you can get a better sense of your small business valuation.
- Factor in your profit margin. If your firm brought in $500,000 in revenue during the last year, you should place your company’s value at about 1.5 times that amount. You need to look at your profit ratio not your revenue generation when making your small business valuation.
- Leave your emotions out of any small business valuations. You may think that you are not emotionally invested in your company but that is absolutely impossible. You would be less than human if you did not get even a little emotional when it comes to working out your small business valuation. You see potential in your company when other people may not. This may be a good thing in some ways but not when it comes to determining the real value of the business. If you really want to get a business valuation that will work for you and not against you, bring in outside experts to look over your business model and situation. Your emotion can drive you to work harder but needs to be left at home when dealing with potential investors.
- What is your real earning power and potential? How risky is the business you are starting? These are questions that can help you determine your small business valuation. There are tools you can use to help you make these determinations but also a hard look at what problems you face and what advantages you have in running your business can go a long way in determining your valuation.
- Consider who you are pitching. Are you looking from funding from Silicon Valley? Are you a start up pharmaceutical company that is looking to partner with well established firms? Where you are looking for investors does have an impact on your small business valuation. Keep these intangibles in mind when making your calculations.
When you are trying to make your small business valuation calculations, there are some factors that are counterintuitive. There is some inherent uncertainly to these valuations. You need to determine not just how much your business is worth now but where you see the trend line going for its future valuation. There is some psychology at play in making these determinations as is any track record you or your partners have in starting new businesses. Unlike some other parts of a business plan, the business valuation estimates are not absolute and can be influenced by a number of factors such as the reason you are doing the valuation in the first place. Knowing what goes into your small business valuation and the methods most companies use when doing this can really help you make the process go smoother and get you a result that works for you and your situation.