Sacramento Business Valuations

Are you wondering what your Sacramento based business is worth? Are you considering the sale of your business? A professional business broker can assist you in determining the value of your business by performing a business valuation.

There are different types of business valuations designed to meet different purposes. In addition to estimating the selling price of a business, valuation tools are often used to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners’ ownership interest, and many other business and legal purposes.

When preparing to sell a business, valuation gives a seller a reference point as to whether the price they hope to get for the business is reasonable and/or achievable. There are multiple approaches to valuation as shown below:

The most common approach for small business is the multiple of earnings approach, It is a simple model that looks to the adjusted earnings the business generates for the current owner in terms of cash flow. It uses a multiplier to forecast the value of future earnings.

Another reliable type of valuation is the market approach. This economic model bases its valuation on industry standard sales figures, or comparable sales. If the business to be sold is a pizza parlor, for example, the market approach looks at the sale of parlors that have similar gross sales. The industry publishes standard multipliers that are used to determine the current value of similar businesses.

The income approach to valuation bases value on a company’s income potential. This type of valuation is most appropriate for businesses that do not carry inventory or substantial tangible assets, such as service-oriented businesses. It looks at cash flow, and uses a capitalization rate to estimate the present value of income the business will likely generate in the future.

An asset-based approach to valuation is typically used with businesses that have substantial assets, usually in the form of inventory and equipment. This type of business valuation is appropriate for retail and manufacturing companies. Experts using this approach take the fair market value of fixed assets and add the value of any improvements, plus the wholesale value of inventory, to arrive at a value approximation.

A business broker can provide assistance in determining which type of valuation is most applicable for your business.  For Sacramento Business Valuations, please contact Ron Schwab at 530.269.1143.