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Different Ways to Determine Small Business Value

Different Ways to Determine Small Business Value

How is your small business value calculated? There are several ways.

There are several reasons one would want to know the value of a small business. Usually, we want to have accurate information at hand for planning exit strategies or identifying the potential selling price of a company. Of course, this process of conducting a selling price evaluation should be left to experienced professionals, like those at Atlantic Business Brokerage, Inc. We provide a free, confidential, obligation-free first consultation and assessment of your business’s worth to review what options are available to you. 

While you definitely should let a professional broker calculate the selling price value of a small business, here is a brief rundown of different ways to conduct a business evaluation.

Discounted Cash Flow

Determining a small business’s value through discounted cash flow is relatively straight-forward. This method primarily looks at how much revenue a company can bring in. Current cash flow amounts are considered, then by following its pattern, we can project how much more cash flow can be expected in the future. This future projection is calculated at a discounted or lower rate, to account for the risk of purchasing the small business.

Discounted Future Earnings

This method of determining business value is similar to the discounted cash flow method, except the calculations for future worth are further broken down and projected with more than one discount variable or time frame. For example, making projections into one year from now to five years from now would yield different results if the discount rates were 10% or 15%. 

Asset-Based Valuation

With asset-based valuation, the liability value is subtracted from the tangible and intangible assets to calculate the net value of the business. Business liabilities, in this case, means any outstanding amounts you owe from your company, like loans, debts, unpaid expenses. Tangible assets would be the worth of the property, equipment, inventory, and cash on hand. Intangible assets need to be assigned an estimated value, but these items are still highly valuable in the price evaluation of a business. These items include intellectual property, reputation, brand-identity, and current customer base.

Market-Based Valuation

With market-based valuation, the business value is determined by comparing it to other similar operations in the industry. This value could vary region to region and from time to time, as the price is dependent on the ever-changing market. The number of current businesses for sale or the number of buyers can influence the pricing evaluation too.

Work With Atlantic Business Brokerage, Inc.

At Atlantic Business Brokerage, our mission is quite simple; we help sellers sell businesses, and buyers buy businesses! Over the past 30 years, ABBI has facilitated the sale of countless commercial properties, businesses, and franchised locations. With our unparalleled knowledge of the business purchase and sale industry and our network of contacts, we offer services to both buyers and sellers that no other brokerage firm can match.

Contact us to discuss your business buying and selling goals today at 410-561-9800, or Toll-Free at 800-279-7569. Email us at [email protected], and follow us online on Facebook and LinkedIn.

This entry was posted on Thursday, October 3rd, 2019 at . Both comments and pings are currently closed.