Some day you’re going to want or need to sell your business. It’ll be to late then to do much to increase the price you’ll get. Even if you think sale is a long way off now’s the time to understand how prospective buyers will view your business so you can do things that will increase it’s price at sale. Let’s start with some terms – Valuation vs. Value.

Wikipedia says valuation is “the determination of the economic value of an asset or a liability“. So, if you want¬† to know what your business is worth you just look up a local specialist in valuation and pay his or her fee to tell you, right? Or maybe not. People who do valuation work serve an important role, but determining the real worth of your business isn’t really part of it. Valuations are most commonly needed when you want a figure for a business for purposes other than a public sale of the business -¬† a partner to partner sale, an estate assessment, a taxation amount. Folks who do valuation mostly use accounting formulas (often, discounted cash flow) that can be readily repeated by another such expert and will be accepted by authorities like courts and the IRS.

Some valuation services come up with “value” in a more market-like way comparing your business to others sold in similar industries and markets to get a sales or profit ratio which they can use to produce a figure for your business. Unfortunately most sales of small to mid-sized businesses are both unpublished and largely based on factors other than sales or income

The real value of your business, the only one that really matters to you, is what an independent buyer will pay in a “well advertised sale” and that’s way more complicated than any formula. Over the next few posts I’ll discuss different factors that come into determining what someone will pay for your business. I hope you’ll find them both interesting and helpful in preparing your business to draw it’s highest price.