Many business owners ask this question over the course of the time that what’s the value of my business. This is very important question since the business value determines that what is the worth of the business so that whenever the business owner wants to either sale out the business he knows what is the actual value and not only for this but the value of the business is an important factor in determining the business performance benchmark and to identify the how the business is doing compared to other businesses in the market.
What are the methods of determining value of the business?
If you yourself want to evaluate your own business, then there are number of approaches that could give you an estimated value of your business that you could use to start the negotiation.
Assets are all the entities which are part of the business and which are shown in the financial statements of the business. These could either be the cash, buildings, any piece of the land, cars, the amounts which are yet to receive from the people are also considered assets. These are the tangible assets but there are intangible assets as well such as the intellectual properties which are usually the software designed by some software houses. If you are thinking of selling all your business, then you should count all these assets and must sum up their current value which will give you an estimation of your business value.
Cash flow is another technique for determining the value of the business in which the cash flow statements are used. Cash flow actually means that how much money is coming in the business and how much is it consuming. In the simpler terms it is used to define that how much money does the business make. This technique is useful when there are shareholders in the businesses and in this case the asset evaluation becomes difficult.
Gross sales calculation:
This method is only suitable when the business owners wants to evaluate the business for its own information and knowledge only. In this case, the business owner multiples the gross sales for the past three years. Since this sale could change for the coming years and could not be same as it was in the previous year’s therefore, it is not the best approach to evaluate the business on.
If a business has multiple shareholders, then this technique could be used which to evaluate the earnings of each shareholder which is more commonly known as the EPS.
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