You are interested in purchasing a business that is already established. You have found an idea that you are extremely interested in. You believe that you can add value to the business to increase its current success. The only thing left is to establish an offer price on the intended business. You submit your offer, only to find that the seller?s expected sale price is drastically different than what you evaluate the business at. Do you let this potentially profitable business go? How can you handle the seller?s over evaluation?
Look at local comps of previously sold businesses
One of the best ways to come up with a true market price for either a residential or commercial sale is to look at previously sold items. The listing price is not as important as the sale price. An owner can realistically list their property or business for any price they want. Yet, this does not mean that they will get an offer or a final sale for this price. Specifically look at comparisons of previously sold businesses. Compare the different features of the business with the one you are interested in purchasing. Also, pay close attention to the initial asking price of these businesses and compare them to the actual sold price.
Look at other company valuation tools
Although the price comparison tool is an important one, it is not the only method used for creating a business valuation report. You can determine the value of your business using these three approaches, by comparison to recent sales of similar businesses, based on the business? earning power and risk assessment, and based on the company?s assets. If you have access to this information for the previously sold businesses, attempt to compare all of them. You can also use a company valuation tool for a more accurate comparison.
Outsource to a business valuation firm
If you are struggling to find relevant comparable information or you are still unable to come to an agreement of business evaluation with the seller, consider outsourcing the entire valuation income approach to a business that provides business evaluation services. They will use a variety of company valuation tools to come up with a value. This may allow you or the seller to make the necessary adjustments to come to an agreement price. You will find that the firm takes more documents and items into the evaluation.
That is because business valuation is largely an economic analysis exercise. Not surprisingly, the company financial information provides key inputs into the process. The two main financial statements you need for business valuation are the income statement and the balance sheet. To do a proper job of valuing a small business, you should have 3 to 5 years of historic statements and balance sheets available. However, this advanced company valuation tool will give you the most accurate value of the business.
Evaluate other aspects of the business sale
The final part of the sale that you will want to evaluate is the seller?s cause for selling. This matters both in residential and commercial sales. The small business valuation calculator cannot numerically take this into account, but it is an important factor in establishing a true business value. It may seem surprising at first that the valuation results are influenced by your need for business valuation, but business value is not absolute. It is a process of measuring business worth, which depends on two key elements, how you measure business value and under what circumstances. In formal terms, these elements are known as the standard of value and the premise of value.
When it comes to the sale of property or small businesses, it can be difficult to come to an agreement on price. The buyer wants to pay as little as possible and the seller often over evaluates the business value. For this reason, it is important to compile all documents, compare them to recently sold businesses, and then create a business valuation report. This report will provide a more accurate value starting point, for which further pricing negotiations can be made.