Before finally deciding to sell your business – it is important to get a proper understanding about what is business valuation and how to get the best price for your business.
Selling your business online could yield a better price as more people will will seriously consider your business make offers and drive up the value of your business. This type of auction sale could add a lot of value in terms of deciding the value of the business in market terms.
Understand Business Valuation
I recently looked at a website called bizbuysell.com and Mike Handelsman who is with that site has posted a very good article which gives the details of understanding business valuations and what the seller should know. He explains in layman terms what comprises a good business valuation methodology and what all the technical terms means.
Bizbuysell.com also has a rules of thumb when it comes to valuation and recommends that you use the earnings multiplier method to get a more reasonable and fair method to assess the business value. They also provide a lot of more detail in the article. Glen Cooper, CBA (Certified Business Appraiser) gives a good introduction the valuation methodology and recommends that you assess value based on earnings since this is what the buyer is ultimately interested in. Furthermore, he also states that other assets should also be included in the business value if they are important to earn the profit for the business. He also recommends the use of EBIT (Earnings Before Interest and Tax) in the computation of value. About the earnings multiplier that can be used can vary from 3 to 20 times but here it is important to use correct judgement.
For a more nuts and bolts approach to understand business valuation take a look at biz filings.com that gives all the nitty gritty about how a valuation in professionally calculated. But don’t worry they have a do-it-yourself business valuation calculator that you can use to find the value of the business. Take a look at the website.
If you looking for another free tool to value your business then I won’t disappoint you – I came across this business tool that also uses the earnings multiplier method to value the business. This tool is provided by bizex.net and they do have some experience in handling business valuation consultancies. Take a look at it but remember that this does not eliminate the need to have a proper valuation carried out by a professional to ensure that the business is being valued accurately. More important use common sense to decide what should be the variables that should be included in the valuation and if the result is reasonable to a prospective buyer.