How do I Value my Small Business?

The problem with selling any small business ($500,000 and below) is how can a realistic value be put on the business. If a business is valued too high no one will be interested or worse value it too low prospective buyers will think there is something irregular. Also where it is listed for sale is important, E-Bay is a tremendous medium for certain things however fraud is common place.

Unfortunately there is no fixed system when it comes to valuing any private business, the IRS, Courts of Law and the Inland Revenue all use there own systems. There are also many wonderful mathematical formulas that can be used; however there is no fixed system. To be honest the whole system is complicated with no fixed rule apart from one. What price is a person is happy to sell a business for and what is the buyer happy to pay?

If you are either buying or selling a small business do not be afraid of negotiation, it is a natural process within business. The following list is a simple aid to assist people who are interested in finding a value of a business, either for the sale or purchase.

1. Does the business have employees either full time or part time? Prospective buyers should be aware that any business in the UK which employs 5 or more people has specific duties in regards to Health & Safety.

2. Is the business purely an internet business? Be warned it is very easy
for an online business to appear to be doing very well, when the truth is completely the opposite. This practice unfortunately is leading to the devaluation of genuine online businesses.

3. Does the business have fixed assets or stock? It is much easier to value a garage where real estate and equipment can easily be valued, where as it is less easy to value a business with no fixed assets i.e. Legal specialists, Solicitors, Health workers etc.

4. Does the business have a full audit trail; it is surprising how many small businesses listed for sale do not.

5. What area is the business in; it goes without saying that businesses located closer to major cities are valued higher than businesses in a rural district.

6. What are the future growth prospects for the business?

7. Will the business require insurance/liability policies?

These are just a few factors that have to be considered, as you can see there is much more to take into account than how much revenue is generated by the business. I hope this short article has been of some assistance to any potential buyer or seller of any small business.

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