What are the three most common mistakes business owners make when valuing their business?

There are nine critical valuation concepts you should understand before valuing your business.

Getting divorced? Going bankrupt? Seeking a loan? Getting sued? Planning to sell your company? At some point, an event will likely occur during the time you own your business that will trigger the need for a business appraisal.

There are various types of appraisals, but when it comes to selling businesses, we highly recommend that you use someone who’s got a successful track record of actually getting businesses sold.

One of the key factors to take into account when considering buying or selling a business is the return on investment (ROI). When valuing a business, ROI refers to the return on an investment divided by the investment amount.

It’s helpful to understand the key differences in order to gain a clear understanding of the factors that have the greatest influence on the value of your company.

It’s obvious that the more profitable your business is, the more valuable it is. However, there are many other factors that can affect the value of your business.

The standard of value is a critical premise in any valuation and determines the specific methods used to appraise the business. If you retained an appraiser to value your business and the appraiser used FMV as the standard of value, you would know that potential synergies were not taken into account.

These are examples you may see as potential opportunities, but when selling a business you will soon discover that most buyers will be willing to pay little for these types of potential. Under what circumstances are buyers willing to pay for potential?

Valuing a business is an inherently difficult undertaking, but it’s a critical step in planning the sale of your business. The essence of valuing a business is predicting the future cash flows of a business and then placing a value on those cash flows based on their present value.

Pricing a business is based primarily on its profitability. Profit is the number one criteria buyers look for when buying a business and the number one factor that buyers use to value a business.