The small town print shop has been in the family for three generations. Making the transition from linotype, to cut and paste, and then to desktop publishing, the print shop has changed and adapted. Serving college students who used to spend Thursday nights at the light tables until their paper was put to bed or serving nervous brides and demanding mothers who pored over books of possible wedding invitations for hours, this family has been the go to printer for most of the people in the country for nearly 100 years. Now, however, the family has decided to sell. There is simply no one left in the family who wants to keep the business. Knowing, however, that they town still needs the print and copy services, the family is working with both realtors and appraisers to try to but the business on the market.
Every Business Has a Story
How do you put a value on a business? How do you put a value on a store that has been your heart and soul for the last eight years? A store that has welcomed shoppers during regular business hours, as well as the emergency openings when a frantic shopper just realized she needs a retirement gift.
Some businesses are easier to put a value on than others. They are easier to value because they may be very similar to other business. They are easier to evaluate because they serve or distribute a similar product. What do you do, however, if you want to buy or sell a business that is very unique? How is its value determined?
The fact of the matter is some small business comps may seem very unique. In reality, however, trained and experienced business appraisal services representatives can usually find a starting point about a business that will help get the process rolling. For example, if nothing else seems like a starting point an appraiser preparing small business comps can start with the number of employees. If, for instance, a business has six full time employees a staring point might be to check the sales of other companies with the same number of workers.
From any starting point, appraisers then start looking for other similarities between a business that has been recently sold and one that is getting priced to sale. Appraisers can look at location, revenue, expenses, and a variety of other details to get an overall view of the market.
Business Valuation Firms Often Use Three Standard Approaches
No business owner wants to think that his or her business is like any other company. Every business owner really wants to think that they offer a product or a service that cannot be found anywhere else. In reality, however, in order to find the most accurate and consistent small business comps an appraiser eventually has to lump groups of businesses together. And in those groupings an appraiser then uses one of three methods to help determine a businesses value.
Valuation Market Approach Basically, this method is used to compare a business to what the selling prices have been for other similar businesses. When looking for small business comps for a photography studio, for example, using the market approach the appraiser would look to see if any other photography studios have been sold in the last twelve months. By looking back and determining whet those other businesses have sold for a calculating an average, a market valuation can be determined.
Valuation Income ApproachBasically, this method is used to compare the income of a business to other comparable businesses. Again, the comparable businesses will also be similar in employee numbers, location, services offered, or a combination of these and man other variables. Taking a business? earning power and risk assessment into consideration, a income valuation can be determined.
Valuation Asset Approach Based on the company’s assets, this third approach is a combination of everything that is owned by the company. The building, the land, the equipment, the vehicles, the inventory, and a variety of smaller items all play a part in determining the asset valuation of a company.
Of the 26.5 million businesses in America, 21.1 million of them have no employees, while the other 5.4 million have employees. All of these businesses at some time will need a business valuation.