No matter what the financing event you are facing is– buying a business, selling a business, getting a loan, or acquiring a partner– you will need a valuation. Understanding how the value of a business is determined is also important because then you can feel confident in knowing what your business or the business you want to buy is really worth. And even if you aren’t ready to sell or apply for a loan yet, knowing how much your business is worth can help you plan for the future.
NerdWallet, a company that explains financial information to consumers, recently published an article that outlines the major things you need to know about small business valuation. Read the full article at this link.
They explain the terms and acronyms you’ll need to know, like SDE and EBITDA and how to organize your finances and determine your assets. They also suggest you do what we always do: find out more about your industry and what businesses of similar size, revenue, and business model are worth. They also outline three approaches for valuation, but if you want more information about these methods, you can read my recent blog post.
As they write, “No matter where you are in your business’s lifecycle, learning how to determine a business’s value is a great way to better understand your own business’s finances and assets within the context of your industry.” We always stress that Valuation is not a strict science, but an art. To find out more about professional valuation services for your business, contact me to learn more.