Business Valuation Strategies for a Small Enterprise

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1st Jun 2016

There are many factors inducing business owners to opt for valuation of their business. These include divorces, estate planning, or simply selling the business. In case of small enterprises, it gets trickier due to overlooking of many significant aspects by their owners. Analyzing the available information as well as resources helps up to a great extent. But a lot still remains to be done by certified business appraisal firm they hire. Strategies for small business valuation include:

Companies Need To Adopt A Proper Reporting System:

This is a common mistake committed by small business owners. They take out money from the business but fail to report it. Proper reporting and management of company’s cash flow should be maintained. It encompasses all expenses paid by the company beyond its owner’s direct compensation. Also, companies opting for certified business valuation at regular intervals fetch better purchase price as compared to enterprises with mishandled accounts. Try to maintain positive trends in your business for minimum of 2-3 previous years to instill confidence among buyers.

They Must Have A Realistic Data Corresponding To Their Actual Performance:

It is a common practice among small business owners to have an unrealistic view on their business performance. It hampers the process of valuation negatively. This is a problem mainly faced by family-owned businesses where emotions run faster than reality. Another strategy calls for an unbiased and individualistic valuation. Two small businesses working in the same domain with equivalent net profits cannot be valued equally. Here, multiple methodologies of appraisal that may include market approach, earnings-based and asset-based valuation is required. After determining these approaches, a final analysis is done to extract the actual value of business.

With these strategies, valuation of a small business can be done more effectively.