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Determining Business Value
Many business owners make the mistake of believing that their business value is based on a variety of factors that may not actually affect their business value at all. For example, some business owners base their business value on the valuation method known as revenue multiple. According to this business value method, the value of a business should be between two and three times the annual revenue the business takes in. A business owner who uses this method to value their business may not see the benefit in having a professional business value appraisal performed.
In reality, you cannot always rely on the revenue multiple methods to accurately value a business. A number of other factors, beyond revenue, can affect business value. Current interest rates, for example; can raise or lower your actual business value. Even if the revenue you take in today is quite similar to the revenue you took in a year ago, your business value could be somewhat different based on economic factors.
You also cannot accurately base your actual business value on how much a competitor sold his or her business for. The three main factors that commonly affect a business value include the amount of cash the business generates, the amount of cash the business is expected to generate in the foreseeable future and the return that a buyer would expect to receive on their investment in the business.
As you can see, the matter of determining a business value can actually be quite complicated. As a result, an accurate business value can only be determined by a professional business value appraiser. Regular business value appraisals are recommended on a regular basis in order for a business to thrive and prosper. For more information about have the value of your business appraised, visit AmericanValueMetrics.com.
American ValueMetrics
1585 South Loma Dr, Ojai, CA 93023
Phone: 805-646-4960 Fax: 805-715-7024