How to Accurately Value a Business
A business valuation is the single most useful piece of financial information about any company.
If you are an entrepreneur, knowing your business’ market value is always important, but it is most necessary when attempting to find a new owner for your business. At Viking, we pride ourselves on providing business owners with the most accurate valuation possible. A business valuation is the single most useful piece of financial information about any company- and Viking specializes in determining that number through a streamlined process that can benefit any business owner, whether they are ready to sell or not. There are many ways to value a business, depending on the firm you decide to work with. It is nearly impossible to find out the value of your business on your own, so we always recommend working with a professional to determine this number. Below you will find general information on how Viking accurately calculates the value of a business and the unique methodologies we use to give you a better understanding.
First, it is important that you have all the documents in place that are needed to perform the valuation. These items contribute to determining the highest price possible for your business.
What is needed to determine a business value:
- Federal tax returns for the last three years
- Interim Profit and Loss Statement (P&L) and balance sheet
- Last three years Profit and Loss Statement (P&L) and balance sheet
- Average value of salable inventory on hand
- Equipment List
- Copy of tax bill on real estate; if the real estate owned
- Copy of any real estate appraisal
- Lease information
Viking uses the following valuation methods:
Cash Flow Analysis
Viking normalizes a company’s cash flow to show the cash a new owner will have access to. To get SDC (Seller’s Discretionary Cash Flow), Viking takes the net income of a company and adds back interest, depreciation, interest, taxes, amortization, officer’s salary, and other discretionary expenses. Our analysts will then take a weighted average of the past three years SDC, along with some other factors, to come up with the business’s value based on their cash flow.
Viking uses multiple databases that track businesses that have sold across the United States and what they’ve sold for. Our financial analysts find businesses in the same industry and revenue range and then apply a multiple of revenue and/or cash flow to the business valuation based on the multiples sourced from the sold transactions. This helps determine what a business valuation looks like in comparison to other sold businesses in that particular industry.
Industry standards come from the published Business Reference Guide – which contains a list of multiples that experts around the country say businesses should sell for. You can find out more about the Business Reference Guide by clicking here.
Our analysts will take a weighted average of these three methods to come up with the final value.
Again, there are many ways to value a business, but working with a business broker will give you an accurate idea of what your business is worth. Figuring out the market price of your company with a professional is the best way to go, rather than trying to figure it out on your own. We can tell you what your business is worth, professionally and confidentially. If you are interested in finding out the value of your business, you can learn more about our valuation process by clicking here.