There are almost as many business valuation formulas available for the
valuation of a company as there are reasons for selling a company. Small business value calculations are a tricky business and depend heavily on the company’s past earnings and likely future earnings. This is the basis of the DCF (Discounted Cash Flow valuation) formulas used extensively by
business brokers, mergers and acquisitions firms and banks when assessing the
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valuation of a company. Especially when determining small business value.
With many private companies, determining past performance to get an accurate valuation of a company isn’t as simple as looking at the books. Most businesspeople take full advantage of legal deductions that distort real earnings. It’s a job for an accountant or NJ Business broker when it comes to this kind of business valuation. They can decipher the tax code and apply it to the books to filter the real cash flow. It’s then the business brokers job to interpret that into a valuation of a company.
Very similar companies can have very different business valuations, for a number of reasons. These characteristics can include: the type of industry they’re in, their customer base, attractiveness in the market, potential for growth, stability and location. All of these are subjective but are essential in valuing private companies or any type of valuation of a company. It is highly suggested that you get a New Jersey business broker to talk you through these small business value calculations. It really requires an expert mind to make sense of it all.
1. Industry type: is an important consideration for the valuation of a company. Not only does it dictate the multiplier used in the company valuation formula, but the bigger picture needs to be studied too. Is the industry growing, saturated or receiving a lot of incentives or publicity? These will all influence the business valuation.
2. Customer base: is a significant factor for determining the valuation of a company. If a business has a varied customer base then it can be regarded as reasonably secure. If there are only a few customers accounting for most of the income, then it isn’t so secure. The attractiveness refers to how appealing they are to investors, buyers and customers.
3. Growth potential: speaks for itself really. Any valuation of a company is going to take into account whether the business can expand or if there are untapped markets to exploit. Stability comes down to year-over-year performance. If the business has steadily grown, or stayed static, it’s an indication of stability. Valuing a company depends on both past and future earnings, stability plays an integral part here
4. Location: is the last consideration when performing a complete business valuation to determine the valuation of a company. Businesses in a city are regarded as more valuable than those in more rural areas. Part of this boils down to the customer base, and the other is the value of assets and any property owned by the company.
Small business value is something that can only be assessed with professional help. It’s best to have experienced NJ business brokers perform business valuations, as valuing private companies can be very difficult indeed, or the valuation of a company for that matter. The market value of a company is often more about what someone will pay for it than how much it’s worth, and business brokers can take effectively manage the two.
Assessing the valuation of a company, especially valuing private companies is a notoriously difficult process. It’s one part calculations and bookkeeping, and one part guesswork. That’s why anyone who is looking for business for sale in NY or NJ hires a local, business broker in New Jersey to get an accurate valuation of a company. That local knowledge is priceless.