Many business owners come to us with the question, “How much is my business worth?” Most of them have a vague number in mind. Sometimes the number is unrealistically high compared to what a buyer would actually pay for the business.
Buyers look for value that is supported by tangible numbers. Many of the business owners that come to us hire us to conduct a professional, credible, valuation of their company.
The information we use to assign value to a company – or arrive at a value range – is straightforward, beginning with the company’s financial statements, i.e., Profit and Loss Statement, Income Statement, and Balance Sheet for the most recent quarter and the last 3 years. We will also ask for the company’s Accounts Receivable and Accounts Payable Aging Reports and Corporate Tax Returns for the last 3 years.
While determining the value of a business is not an exact science, the process begins with this hard financial information that the owner provides to us. As valuation experts, we apply various methods of calculating value, industry formulae, and arrive at a clear, credible value that potential buyers can appreciate.
Buyers don’t purchase companies solely on past performance, but history is one of the factors buyers consider when they ask, “How likely is this company to generate cash in the future?” For buyers and sellers alike, return on investment is key.