Small Business Valuation Factors
Initially, you don’t need to spend money on an expensive small business valuation. Talk to a few people to find out what they think your business is worth. Business brokers, people in your industry, mergers and acquisition professionals, some accountants and, of course, valuation experts can all quickly provide an estimate of what your business is worth.
This information will help you decide if now is the right time to sell. You may wish to wait for the market to improve or put off selling until you are making more money and can command a higher price.
Remember that many things affect the valuation of your small business. Cash flow is the most important factor in value. Other value drivers include:
- Lack of owner participation: buyers like businesses with management in place.
- How you’re positioned compared to competitors: if you are leading the pack, your business will be more attractive.
- Diverse customer base: buyers prefer businesses with a range of customers.
- Documented systems and procedures: operations manuals and documented procedures reduces buyer risk.
- Solid financial management and information systems: the buyer wants to know she or he will be able to access the information needed to make good decisions.
- Well-crafted image: buyers want to see that your business, in terms of facilities and marketing material, looks like what you’re asking them to pay for it.
- Opportunities: buyers prefer businesses in which they can make a difference and contribute to growth.
Once you decide to sell, you may want to have a more extensive, and more expensive, small business valuation done.