If you are interested in selling your Seattle business, you may have many questions about how a value will be placed on it. You have worked hard and invested a lot of blood, sweat and tears in building up your business and making it successful. How can someone put a price tag on something like that? Thankfully there actually is a formula that is used when determining business valuation. Here are a few things that are considered.
- The Income Approach – this method obtains an indication as to the value of the business based of the amount of anticipated economic benefits that are associated with the company. The appraiser may look at several periods of time to determine potential future income.
- The Market Approach – with the market approach, the company is compared to other similar businesses that have been sold in the past using either the publically traded company method or the direct market data method.
- The Asset Approach – this method takes the companies’ profits assets and liabilities into consideration and adjusts them to the fair market value adding value for intangible assets and other contingent liabilities.
Determining Standards of Value
During business valuation the standard of value in Seattle will typically be fair market value, investment value or fair value for most operating businesses.
- Fair Market Value – this is the price of cash equivalents that could be expected when a property passes from one person to another. This is a negotiable number that gives a general idea as to what a buyer might be willing to pay for the business in an unrestricted market when the business is not in duress.
- Investment Value – this is the price that an investor would pay based on certain investment requirements. This is normally used when an acquirer wants to determine the value of a target company.
- Fair Value – this is the legal standard used to place value on a business. This value is determined by the court and will stand during any legal proceedings.
Businesses Should Get Valued Annually
There are several reasons why a business should undergo an annual valuation.
- Provides Accountability – shareholders can see the value in the company and determine if the leadership is performing successfully or if they need to make a change.
- Helps in Estate Planning – this ensures that wealth is protected for heirs
- Increases Banking Options – a higher value will enable a business to borrow more money based on the value of their business. This can come in handy if they want to expand or invest in other companies.
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