How to Get Your Small Business Valued

by Damon Callihan | August 9, 2017 12:03 pm

At one point or another, it’s important to get your small business valued. These valuations play an important role in attracting investors and bond buyers. Also, if you want to sell the business, you will need these valuations right away. Getting a small business valued is trickier than you might think. The problem is to decide exactly what is worth valuing. Some tangible aspects, like the building or land, are easy to value. But there are also intangible aspects of a company that is not so easy to put a number on. If you want to get your small business valued, here is what you should do:

Hire a Professional Consultant

The best way to get your business valued is to hire a professional entity like CBS Corporate Business Solutions[1] who are experts at providing business valuations. The numbers they provide might be even considered more trustworthy by investors and potential buyers because they come from a third party. Of course, before you hire a professional valuation expert, it’s important to understand exactly how they make the calculations. There are several techniques to value businesses. There are also modern methods and old ones. So, ask the outside group right away how they make the calculation. Knowing a bit about the techniques in use will help you make the right hiring decision in this regard.

Get Dollar Values for Physical Assets

Your company will own certain physical assets, like land, office space and physical merchandise that are really easy to put a dollar value on. Therefore, make an inventory of these tangible assets and put a dollar value on all. This would be how much your company’s physical assets are worth. This number will only be a part of the total valuation. There will be other aspects that are in need of a dollar valuation.

Value Intellectual Property

Don’t forget that the intellectual property your company owns—copyright, trademarks, and patents—are also highly valuable assets. If your small business is incorporated, then the incorporation papers can have value as well because they protect the company name. Valuing intellectual property which have no physical presence can be a bit complicated. Therefore, you might need to hire specialized attorneys or consultants to conduct the valuation on your behalf. Generally speaking, IP like patents are highly valuable. Some even consider each patent a company owns to boost the overall company value by a million dollars.

Skilled Employees Matter Too

For some small businesses, especially those in the IT sector, the employees may require valuing as well. If the company currently employs highly skilled people like gifted programmers, artists, or craftspeople, then their skills can factor in the company valuation too as long as these people are still employed. This was a common technique in the 90s during the dot-com boom. Tech companies would calculate a value based on the skill of the workforce as well.

Value the Earning Potential

The valuation will also be based on the earning potential of the company. It’s not about how much the company is making right now, but how much the company could be making in the future. If the small business has projects in the research stage, the earning potential could add significant value to the overall company.

Finally, the current income of the company will factor in valuation calculations as well. All of these must be considered when putting a dollar value on your small business.

Endnotes:
  1. CBS Corporate Business Solutions: https://www.linkedin.com/company/corporate-business-solutions

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