There are several different methods that can be used for a business valuation—ways that use multiples of earnings, valuing assets, or calculations based off income. The best valuation approach can depend on why the valuation is needed, the industry, business size, owner’s involvement, and many other factors.
When planning to sell—or financially planning your future—it’s best to get an independent third-party assessment of what your business is worth from a third party that has experience pricing business for sale (as opposed to pricing a business for liquidation, for a divorce settlement, etc). Business valuations conducted by this type of professional will look at several methods of computation relevant to you.
And though this valuation exercise is a good starting point for making decisions, ultimately the Fair Market Value of one’s business is determined by the market—what a buyer is willing to pay and what a seller is willing to accept.
Getting a valuation done by a knowledgeable, independent third party that has experience valuing a business for the purpose of selling is key for smart sellers. Because having realistic expectations on business value sets owners up for long term success in retirement planning, succession planning, and helps the sales process move along quicker.
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