How To Determine The Right Price For Your Business

Ways To Properly Determine An Approximate Value Of Your Business

When you are getting ready to sell your Phoenix business or a business in the metro area, you’re probably wondering how much your business is actually worth and what you can expect to net from the sale. Being able to accurately estimate the value of your business can help you set reasonable expectations, make better business decisions, and ultimately enable you to find the right buyer when you’re ready to sell.

A business valuation, performed by an experienced Business Broker, will tell you what you can expect to sell your business for on the open market. To calculate this number, your Phoenix Business Broker, who knows this area very well, will utilize various valuation methodologies that take into account, your business assets, earnings, debts, accounts receivables, and accounts payable, among other things.

If you’ve never sold a business before, you’ll be able to find some online resources that can help you determine an approximate value of your business. However, the most accurate and reliable way to calculate the value of your business is by working with a Certified Business Intermediary (CBI) in your local area who has experience in the field and will take all of the unique factors of your business into account.

Keys Components of Determining the Value of Your Business

Get Your Finances Organized

Since this process can be complicated, consulting a professional is very important. If you are anywhere in central Arizona, use a Phoenix Business Broker who understands how to properly value a business. Before you can even think about how to value your business, you’ll need to get your finances in order. Collect and organize documents, including:

Your last three years profit & loss statements and balance sheets.

Current year to date profit & loss statement and balance sheet.

Your last three years of business tax returns.

A list of your furniture, fixtures, and equipment with current fair market values.

Approximate value of on-hand sellable inventory at your cost.

You can expect any serious buyer to want to review your financials to understand how profitable your business is. Preparing this information will help you maintain realistic expectations about the value of your business and promote confidence and accuracy in your final calculations.

Calculate SDE

Once you’ve assembled your documents, start by calculating your Seller’s Discretionary Earnings (SDE). You will use your Profit & Loss Statements and tax returns to determine this number. The value of a small business is usually determined by the SDE of the business (By the way, SDE is what banks use to determine the value of a business for an SBA loan). Seller’s Discretionary Earnings (SDE) is defined as the earnings of the business before interest, taxes, depreciation, amortization, one owner’s salary/compensation, owner’s benefits, discretionary expenses, as well as one-time and non-business related income and expense items.

Take Stock Of Your Business Assets

Although it can be tricky to put a financial value on all the assets related to your business, it’s a necessary part of the process if you want to be compensated properly for the business you’ve built. Make a list of your tangible assets including inventory, furniture, fixtures, equipment, and company vehicles. Also, make a list of any intangible assets, such as intellectual property, and patents. Seek the advice of a Certified Business Intermediary (CBI) for guidance.

If You Are In Arizona, Work With The Best Business Broker In The Industry: Phil Reese

Phil Reese, CBI, is your #1 choice for selling your Phoenix business. He has extensive experience and a full understanding of how to properly value businesses. Phil can help you maximize your selling price and guide you through every step of the complex process of selling a business. Schedule your consultation today!