When it comes to having a business that you know will stand the test of time, you have to know everything there is to know about its worth. Which is why it is important to understand the market approach to business valuation

Firstly, it is necessary to discuss what business valuation actually is. Basically, it is a process and a set of procedures that are used to determine how much a business is worth. This is done in three different ways:

  • Asset approach
  • Market approach
  • Income approach

It is important to understand all three of these approaches in order to get a comprehensive understanding. However, in this case the market approach is the business valuation that is being focused on. The market approach will look at the competition and how much they are worth. In more technical terms it will rely on the signs from the real market place to help determine the cost of your business. Unfortunately it is true that in the business world you are constantly competing with your competitors. This means that your business could be worth more or less depending on how your competitors are fairing on the market. 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 similar business are going for, as in how much you can expect to pay. If you are wanting 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. All facts have been revealed as to the state of the business and any other relevant information that should be discussed before the purchase or sale.  It is also a great way for the seller to provide the buyer with an accurate portrayal of the monetary value of the business. It helps to stop any inflated prices and either party getting a raw deal on the price. This is why it is important to take into consideration the market approach during the valuation process.

Is it necessary to get a business valuation if you do not intend to sell?

There are many other reasons why it is necessary to get business valuations done, selling is only one to take into consideration. Two other important reasons to get one done is for tax and loan purposes. It can be extremely difficult to get a loan to expand your business if you do not have the figures by your side. A business valuation will prove to the banker whether or not you are eligible for a loan. Tax season requires a number of different pieces of information, the valuation of your business is one of them. Therefore, getting a comprehensive business valuation is a necessity for many reasons. Here at The Property Partnership we can provide you with this service. For more information visit our website Property Partnerships.