Aug 14, 2014

Posted by Shanell Calloway in Business | Comments Off on Five Factors to Consider for Business Valuation

Five Factors to Consider for Business Valuation

Have you ever wondered how much your business is worth in the current market? Are you planning for your future and unsure of the value of your business? You are not alone. As a business owner, you have been busy running your business and making it a profitable enterprise. You wear many hats to make the operation a success. You may have built an outstanding management team with reliable employees. When considering business valuation, Minnesota business owners should consider the following factors:

1. Profitability: The EBIT line is your profit before taxes, interest, and depreciation. Factors such as debt servicing is crucial in evaluating the worth of the enterprise since acquiring more debt may sink a deal.

2. Profit Margin: This depends on the nature of the business. A healthy profit margin that may have potential to expand with new investments, to improve the goods or services, is certainly attractive to a potential investor.

3. Risk vs. Opportunity: The organization’s market share dictates the risk factor. If the market share is dominant with little or no competition in delivering goods and services to customers, it certainly bodes well for acquisition purposes. Fighting tooth and nail for every sale with your competitors and incurring high marketing costs heightens the level of risk for continued success of the enterprise.

4. Uniqueness of the Business: By this, we want to know if the organization will fit with a larger organization seeking to acquire a firm that will strengthen the larger entity. For example, a computer technology service company may want to acquire a local tech company that has a dominant market share in the area in which the firm wants to expand. This would certainly increase the value of the firm.

5. Goodwill: This is the “x” factor in all business sales. The question is how much “blue sky” is the buyer willing to pay to acquire your business? This usually requires skillful negotiation between the two parties to arrive at a sale price satisfactory to the seller.

Business valuation in Minnesota can be difficult in this economic climate of uncertainty. If your business is thriving in spite of the economy, you can expect a quick sale. If you are struggling, you can expect a lower valuation. Seek the counsel of qualified experts to consider the value of your business.

Sunbelt Business Advisors has the expertise to help you value your business and develop a plan to help you achieve your goals. Visit www.sunbelt-business-advisors.com for more information.

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