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3 practical ways to determine the value of your business

| Jun 9, 2021 | Estate Valuation |

Many business owners in Minnesota face challenges when it comes to accurately calculating the value of their businesses. However, business valuation is essential, especially if you plan to sell the company or need to secure some funds. You may also need to do a business valuation to onboard more shareholders to your company. The following methods will help you determine the value of your business.

Earning value method

A multiple of your company’s earnings can be used for estate valuation purposes. This method of valuation is common where shareholders are involved. Earning valuation is usually based on your business’s ability to produce more future wealth.

The principle at work here is that the higher the earnings per share, the more valuable the company is. Earnings can also be termed as profits. The profits are first determined, and then expenses such as taxes and interest are subtracted. The remaining figure is then multiplied by the number of shares.

Tallying the value of assets

You can use asset valuation to determine how much your business is worth. Your business assets include all the property owned by your company. These may consist of land, building, vehicles and accounts.

Your business assets can be valued as a liquidation in instances where you face insolvency or as a going concern when the business is operating normally. Sadly, your assets are accorded a lower value than they are worth when valued as a liquidation. If you opt to sell your business based on this method, be keen to take advantage of intangible goodwill factors such as reputation and customer loyalty.

Market

Here, your business’s value depends on the market and what other similar companies are worth. It would be best if you got an amount equal to or close to the fair market value. However, you will be required to increase or decrease your value in some instances depending on what buyers are willing to pay.

Most of the time, these valuation methods don’t give a precise value to your business. If you are planning to sell your business, have a sit-down with a willing buyer and negotiate on the best deal while referring to any one of the methods above. An attorney may help you during negotiations.

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