How to Calculate your Business Value Step-by-Step
When determining the value of a business it take a process that involves having different considerations of how the business operates and determining the number of pros and cons that at attached to the business. Business appraisals are critically useful in two instances; when you want to access the level of growth of your business over a given period of time and when it comes to selling the business as a form of figuring out the real value of the business in the market in relevance to it status among competitors in the some industry. Certified public accountants are responsible for assessing the value of a business by having considerations of its assets. The assent base of a business and the income made by the business are some of the considerations that are used to find the actual value of a business.
When determining the value of a business it involves a process that consists of five steps that will give an actual value. The first step in determining the value of a business is planning for the assessment ahead and consists of determining why you need the business valuation and preparing the business information required for the process. Some aspects that vary in determining the business value is how to measure the business value and secondly the circumstances that are subjected to the business valuation. The second step is adjusting the past financial statements of the business. For a small business there may be required about 3-5 years of the business financial books so as to find the trend the business is following and its preparedness for the future endeavors. So as to increase the capacity of a business production the income statement is adjusted alongside the balance sheet according to a business earnings since they are the most important document in a business accounts.
After the second step business valuation method is done by the guideline of income approach, asset approach and marketing approach. A number of factors can influence the method of business valuation as; value of fixed assets, income trends, competitive edge of the business and availability of data of a business cost of capital.The fourth step is implementing the method picked at step three where using several methods is recommendable since some resulted may differ for a critical consideration in use which happens to be vital for the business.
Finally, you will reach the final business value where you may have slightly different values due to the different methods which are referred to as business value synthesis. With the different values which are not definitely the same you make some validation on using one of the values in accordance to the most suitable method.