A business valuation is a general process of determining the economic value of a whole business or company unit. The first thing to keep in mind regarding the valuation of a business is that there are many different methodologies for valuation. Some methods may weigh income more heavily as a factor, while others may look more closely at “market value” based on other similar assets that have been sold recently. Business valuation services can help business owners easily come up with the correct price.
Why Does My Company Need a Business Valuation?
• Opportunity to Sell or Merge- You might come upon an opportunity to sell or merge with another company and the matter must be decided quickly. Having an up to date business valuation allows you to take advantage of these kinds of opportunities.
• Addition of a New Owner- The value of your business must be determined to know the potential partners buy-in-price.
• Contemplating an Exit Strategy- Are you reaching retirement age and looking for an exit strategy? A business valuation in Phoenix can help determine the appropriate strategy for your business.
• Expanding Business- You might want to expand or build new facilities. You can be sure that the bank will want a valuation of your business if you’ll be looking for financing.
• Exit of Partners or Shareholders- If you encounter the need to separate from partners or shareholders, you’ll need to know the value of the business to determine how to divide it up. Having this information on hand can make an unpleasant situation less stressful.
• A Disaster Situation – It’s very useful to have a previous business valuation on hand after a business disaster. It can establish a benchmark against which to compare the value of the business before and after the event occurred. It is tough to go back in time and try and value your business as of a previous date.
A company’s valuation could be very different depending on who actually conducts the appraisal. The important truth to remember is that your business is worth whatever someone is willing to pay for it. There are a number of factors, however, that are traditionally considered when calculating the value. We have highlighted six of the most common below:
#1. Earnings History
Companies that generate stable, above industry average earnings, are more valuable. The higher this valuation factor, the lower the risk that business earnings can decline unexpectedly. The net effect is greater business value.
#2. Location
Business is all about LOCATION! Your company’s location is a huge factor in its value. If you have an incredibly innovative idea and a fantastic business model, it may not mean much if you are in a location with little potential to grow or succeed. Conversely, if your business isn’t that successful, but you are in a prime location, this can be a major positive when it comes to valuation. 
#3. Growth Prospects
Firms operating in rapidly growing industry sectors are more valuable. These days companies in the health services, energy, and education are likely to face favorable growth prospects because the demand for these types of products and services is growing.
Regardless of the industry, your firm operates in, the business value depends largely on the company’s earnings growth outlook. This valuation factor is highest for the companies with an outstanding earnings growth track record.
#4. Concentration
If your business is doing very well but only has a couple of key clients, this would have a negative impact on the value of your business since the loss of one client could potentially be ruinous for the business. On the other hand, an extremely diverse client base would be a positive factor. Similarly, product concentration and market concentration can also be major factors in valuation. If you only sell one product, or your products only appeal to a very specific market segment, that is not considered as valuable as a company that successfully sells diverse products and appeals to a diverse market.
#5. Reputation
The first thing to keep in mind regarding the valuation of a business is that there are many different methodologies for valuation. Some methods may weigh income more heavily as a factor, while others may look more closely at “market value” based on other similar assets that have been sold recently.
A company’s valuation could be radically different depending on who actually conducts the appraisal, and the truth is, your business is worth whatever someone is willing to pay for it.
However, there are a number of factors that are traditionally considered when calculating the value of an existing business. Below we have detailed six of the most common.
#6. Employees and Staff
What kinds of employees will a buyer be inheriting if they purchase your business? A skilled staff and effective, the reliable management team can have a strong impact on the value of your company.
Final Thoughts
A business valuation is essential for many aspects of operating a business. Business valuation is a business owners best option to deterring the proper value. There are six major areas that impact the value of your company, and business owners should be aware of these key factors to continually improve them.
Limitless Investment & Capital Business Valuation Services in Phoenix
Limitless Investment & Capital has been an industry leader through providing customized, certified, affordable business valuation services in Phoenix tailored to the specific needs and circumstances of our clients. Our business valuations are thorough, detailed and rigorously conducted, resulting in a comprehensive, fully documented and defensible valuation opinion that is regarded favorably in accordance with accounting and legal standards.
Whether you are looking to expand your business through acquisition, need forensic accounting analysis, value enhancement strategies, or economic damage assessments, a business valuation can play a key role in helping you achieve your financial goals. Schedule a FREE FINANCIAL ANALYSIS today!