Three Basic Terms You Should Know About the Business Valuation Process

Small business appraisal

When it comes to your small business, you very likely take the running of it very seriously, maybe even personally. Many would like to think they can keep their emotions out of the picture, but something like a small business, where you put in so much blood, sweat and tears can very easily get tangled up in your emotions. To say you wouldn’t take things personally is a difficult thing to do. After all, what is a small business if not personal?

Business valuation is an economic exercise that all business owners must go through when a business is being sold or appraised for a loan against it. If you bought your small business, then the previous owner went through the process in order to figure out the price she would plan to ask for it. Perhaps you negotiated from there, but the business valuation calculator came up with a number from which you would begin those negotiations.

In order for the business valuation calculator to come up with the proper numbers, a business owner needs to furnish at least three to five years of historical income statements and balance sheets. These business valuation tools show what the business needs to make compared to what it will spend each year in order to make a profit.

While there are a number of things involved in a quality business valuation, it really boils down to a few simple things. Here are three basic terms that you should know before you get your business valuation.

1.) Small business valuation software

Small business valuation software is used to calculate a business’s value based on one or more of different business valuation approaches. These approaches are based on the type of business being looked at. The obvious nature of a time-saving device can speed things along, but small business evaluation software is more than just a simple business valuation calculator. It handles the complex organization of the findings and can even assist in communicating the results in a clear and understandable manner.

2.) Business appraisal

A business appraisal is an economic analysis that is done in order to determine the estimated worth of a business. The measuring of a business’s worth is determined by two basic factors: how you measure business value, to begin with, and under what circumstances you are seeking measuring the value. For example, does the owner need to sell quickly or is the business booming?

3. Business comps

When you talk about business comps, you are mostly talking about comparison. During the business valuation process, you are comparing your business to similar businesses. The comparison takes into account business earnings, assets of the company, earning power, and risk assessment, to name a few.

As you can see, the business valuation process is a numbers game, and the more numbers you have to back up your notion of what the assessment should look like, the less involved your emotions will be in the process.

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