Quick Value Methods

This method is based on the current market price of assets. For instance, when a buyer is looking into purchasing a company, he might consider the stock certificates. A buyer may not have full access until he has paid off some of the liabilities incurred by the company. It is also possible for the buyer to possess everything outright. However, these issues are not cast in stone. They vary from one transaction to another. By using the book method, both the buyer and seller agree on a fair market price for the assets.

ROT or Rule of Thumb is great for small and medium-sized enterprises. An evaluation is basically made by comparisons. It is a simplified method that is not accurate and should not be fully considered because it might not be correct. However, it gives a rough estimate of how much a business might actually be worth by comparing it to a similar business. The Internet has made everything easy. It is possible to view businesses listed for sale and get an idea how much your own business is worth. But keep in mind that most businesses would not sell at the actual price that they quote in these listings.

This is a Plucked From Air approach where guesses rule about the pricing of a business. This is done without considering any of the formal valuation methods. The danger of using this method is that one can undervalue the actual cost of a business and sell it for cheap. Moreover, an owner might value his business at a price not exactly consistent with the marketplace thereby making it impossible to be sold or acquired by another person.

The best means of knowing the worth of your business is to calculate the most recent annual profit and loss statement. This helps to determine the purchasing power of the business and gives a realistic picture of the cash flow that is being generated by the business. Once the figure has been determined, multiply it by number of business categories. Keep in mind that these evaluation methods offer a cheap and quick idea of the value of a business. They can be used as a benchmark for selling a business. Though in the long run a business is always worth more than what someone wants to actually pay for it.

Alam Qureshi is a Certified Business Intermediary (CBI), Certified M&A Professional and Broker of Record at ProClient Brokers Inc., Brokerage. He helps business owners learn how to sell a business so they can get the maximum value for their company. call us 416 364 5550 or CONTACT US to get in touch.

Date modified: 7-13-2019