Determining Business Value: 7 Business Evaluations and Appraisals

Determining Business Value: 7 Business Evaluations and Appraisals

To sell your business, you must first find its value. What does this mean exactly? A business valuation is always the first step in a multi-step selling process, and yes, a business broker can assist - but what does it entail? Because no two businesses are identical, no one business valuation serves as one-size-fits-all. There are seven common business valuations to explore. Let’s take a look.

 1. Business Appraisal

This method is completely focused on selling 100% of the business and viewed as a financial opinion of market value. In other words, how the seller or buyer might value the business does not come into play.

 2. Estate Plan Valuation

Like the name suggests, this valuation is for business owners who have a business inside their estate and an appraisal is required for tax purposes.

3.  Buy/Sell Partner Appraisal

In this case, there are multiple business owners. When one owner is hoping to buy out the other’s shares, this valuation is conducted.

 4. ESOP Appraisal

ESOP, or Employee Stock Ownership Plan, is a valuation conducted when an employee-owner needs to understand the value of the business and their business ownership interests.

 5. Divorce Valuation

As the name suggests, this valuation is conducted (much like the buy/sell partner appraisal) when one owner (i.e., partner) is buying out their former significant other’s portion of the business.

 6. Personal Goodwill Valuation

When clientele feel connected to a business because of the owner, their participation or exit very much affects the overall value of the business. This valuation aims to value a business for an important intangible asset: goodwill.

7. Minority Interest Valuation

Last, but certainly not least, is the minority interest valuation. This is a valuation used to determine the value of an asset in the business where the minority ownership is not liquid. If you own a small percentage of the business, say 10%, the value of your portion may not literally translate to 10% of the overall value. This valuation helps calculate what that value truly is.

Before seeking to determine the value of your business, its shares or its goodwill, contacting a business broker is the best first step. The invaluable expertise they possess can ease the process of calculating your business’ worth, and therefore its listing price. If you are interested in selling your business and calculating its value, contact your local experts at Transworld Business Advisors Houston today.