The Importance of Knowing the Value of your Business in a Business Transition
Business Transition Alliance
When thinking of exiting your business, entrepreneurs must understand the value of their organization. Business valuation can be a complex process but it is an essential part of a business transition. Ultimately, it can determine the economic value of a business or a set of assets.
There isn’t just one way to determine the value of a business. There are a few different approaches that you can take to understand how much your business is worth. The three primary approaches are known as the Income Approach, the Market Approach, and the Asset Approach.
In this approach, a business is valued based on the present value of its future earnings or cash flow. To do this, you need to project the earnings of your business and adjust them according to changes in taxes, cost structures, growth rates, and others.
The market approach involves research. It is a way of determining the value of your business based on the selling price of similar assets. The market approach will consider recent sales of similar assets as well as make minor adjustments and differences between them.
The asset approach focuses on the business’ net asset value, which is determined after subtracting total liabilities from total assets. It is important to determine what assets and liabilities should be considered in the valuation and how to measure the worth of each one.
When determining the value of your business, it is also important to make sure you have the necessary documents to calculate your company’s worth. These documents may include:
- Tax returns
- Customer and vendor lists
- Financial statements
- Depreciation schedules
- Articles of incorporation
Business valuation takes time, but it is an essential part of exiting a business. At BTA, we are ready to help you every step of the way of your transition. For more information on business valuation, feel free to contact us at firstname.lastname@example.org.
We are business owners and advisors that offer consulting services to entrepreneurs. Working hands-on, we help develop and implement effective strategies that increase business value, growth and profitability, to prepare for the future.