Business owners may wonder what the recession has done to the value of their enterprise. Sales are down, market share may have eroded, and demand for your products may have changed dramatically since before the recession officially got started in December 2007.
Even though the federal government has declared the recession over, the residual effects of high unemployment, changing customer tastes, and continued market uncertainty has many people carefully weighing their purchases.
Business Valuation
If you were to sell your business today, how much do you think you would get for it? Obtaining comps of recent sales for businesses like yours is one approach, but ultimately the value of your business is determined by one thing: what someone is willing to pay for it.
According to Krayton M Davis of the National Association of Certified Business Brokers (NACBB), “If the buyer perceives that the value of business is great, they will pay a higher price. That will be dependent on the buyers needs, strategy, and resources. That is why you should target your selling strategy to those buyers who will perceive your offering at a greater value.”
Mathematical Formula
In other words the valuation is more psychological then based on a mathematical formula.
Certainly, having some sort formula based on modified cash position, asset holdings, market strength, and company valuation can be helpful in giving you a ballpark figure but the price is ultimately determined by what a customer is willing to pay for your business as well as what you’re willing to sell it for.
Estimating Business Value
One way to quickly estimate your business value is to take a modified cash position and times it by a factor such as 2, 2.25, 2.5 or more. For example, if your modified cash position is $50,000, then your business might be worth $100,000, perhaps as much as $125,000 or more.
Of course, that factor will vary by industry which is why a professional valuation is the best approach when determining your modified cash position and worth.
Value by Current Assets and Cash Flow
For a more precise estimate, you’ll want to consider your assets and accounts receivable. To determine that you’ll need to add in current assets, current receivables, and current cash flow to come up with an estimated value.
Again, this formula isn’t perfect which means that if you’re wanting to get the most for your business, then you should seek professional guidance to determine its value.
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