Knowing the worth of your business is very important. After all, you are in the business world to make money and understanding the importance of business valuations will help you get a better understanding of where your business currently is and where it will be heading. There are different ways in which to approach a business valuation and as a business owner you need to understand the market approach to a business valuation.

What is a business valuation? In short, a business valuation is a process and set of procedures that are used to determine, as accurately as possible, how much a business is worth. This is done in three different ways:

  • Asset approach
  • Market approach
  • Income approach

In order to get a more comprehensive understanding you’re the worth of your business is it important to understand all three of these approaches. The market approach needs to be focussed on as this approach looks at the competition and how much they are worth. In more technical terms, the market approach will rely on the signs from the real market place to help determine the cost of your business.

In order to survive in the business world, as a business owner you are going to be constantly competing with businesses in the same industry that you are in. The competitor angle will allow you to determine the value of your business based on how your competitors are faring in the market place. This affects your approach in two ways, whether you want to sell or buy. For new business buyers the best way to approach it is to find out how much a similar business is going for, and in that way you will get an idea of how much you can expect to pay. If you are intending to sell, than you need to see how much other businesses, similar to yours, are being placed on the market for. This can be more difficult to determine as many prices are inflated so as to give leeway during negotiations. This process is also known as fair market value. Which basically means that the buyer and the seller are willing to accept the price that the business is going for on the market. Knowing all relevant information from a business aspect is very important as it will provide the buyer or seller with a more accurate portrayal of the monetary value of the business. It also helps to stop any inflated prices and either party getting a raw deal on the price.

Why is a business valuation so important for my business?

Whether you are intending to buy or sell a business you need to know, at all times, what your business is worth. A business valuation will assist you when applying for a business loan as the figures provided in the valuation will allow the bank to get an accurate view of what your business is worth and whether a loan will be viable or not. A business valuation is also important for tax purposes.

The Property Partnership is the right company to choose for all your business valuation requirements. The Property Partnership will make sure that your business is valued at current market value to assist you if you are considering buying or selling a business. For more information on the services that The Property Partnership can help your business with, visit their website www.property-partnership.co.za