Business Evaluation – Understanding the Principles
Business Evaluation is subjective, as any expert in the industry will tell you. Buyers (and sellers) in the corporate world perceive value in different ways, and that means that there can be considerable fluctuations in the prices paid when a company changes hands. Thankfully, there are tried-and-tested (not to mention widely used) methods which allow emotion and sentimentality to be taken out of the equation. Such calculations focus simply on how well a business is performing – in terms of profitability, turnover, expenditure and market share.
The best way to think about this is to put it from a customers’ perspective. Let’s imagine that you have a perishing thirst, and you haven’t had a drink of water for two whole days. If you pop into a store for a bottle of ice-cold refreshment, the price might only be one or two dollars. However, the value you receive from the water could be considerably more – and in actuality, you might have been willing to pay $10 or $15 to quench your thirst.
Business Evaluation goes beyond this, though. For any person buying or selling a company, there are a plethora of questions that should be swirling through their head. For instance, why has an entrepreneur chosen to sell their entity? Surely if it was making an impressive profit, they would want to hold on to it? Also, a prospective buyer needs to look beyond where a company is now, in order to assess its potential to grow. Let’s explore this idea further with a rather specific example.
Imagine you’re a media mogul looking to buy a newspaper in the early 1990s. You can see that the publication is making plenty of cash – millions in fact. If profit was the only consideration, you’d snap it up right away. But growth potential is important. That same newspaper now (if it has survived the recession at all!) is probably making a fraction of the profit. Classified ads, social media and even dating sites have taken their income streams. You need to be astute and look for threats that lie ahead.
Business Evaluation – thankfully – is something that you don’t need to perform on your own. In order to protect your investments, and ensure an acquisition doesn’t turn sour, find an advisor who will look at strengths and weaknesses on your behalf. Sellers can ensure that their business won’t get run into the ground by a novice, and receive reassurance that a buyer is genuine. It’s like flogging off a car you’ve built – you want to pass it on to someone who will care for it.
Business evaluation calculator
Business evaluation calculator tools can be incredibly useful if you’re an entrepreneur who is curious to see how much their company is worth. Accountants and business advisors often ask a series of questions to give you a relatively accurate estimate. Factors they’ll consider include your annual profit, tax liabilities, outstanding debtors (including loans or bank overdrafts,) assets, remuneration and any unexpected costs which can make a considerable dent in your takings. Multiples are then added to get a projection of what it could be sold for.
Business evaluation methods
Business evaluation methods vary from country to country – and can even depend on the outlet you choose to get an estimate. If you run a company heavily reliant on its assets – such as property, oil or steel, for example – you would determine their total value, and then deduct any debts. Another technique is to ascertain the price-to-earnings ratio. Calculating it is easy: you take the cost of each share, and divide it by how much profit it made. The higher the number, the stronger the business.
Small business evaluation
Small business evaluation can still use price-to-earnings ratios, but given the size of the companies at play, a different strategy is often used. Barriers to entry are often the main thing that any entrepreneur will consider. For example, if a small firm can be bought for $250,000, but they can alternatively start their own outfit from scratch for just $100,000, they’ll likely go for the latter option. Other ways to kick the tires of a firm include reviewing their cash flow both past and present.
Business evaluation formula
Business evaluation formula is another good idea, but there are three types. The first looks at how your company fares in comparison to a similar company, and this is known as the market method. You could approach it from an income perspective, where the focus is solely on how much your company could earn in the future. The next step is to apply a multiplier to see potential turnover over a longer period. Finally, you can look at the assets that the company already has in its possession.
Business evaluation certification
Business evaluation certification is a great way to offer your appraisal skills to companies around the world. You learn all of the key tenets for valuing firms of all shapes and sizes – irrespective of the industry they are based in. There are legal requirements you need to consider, as well as ethical policies that any advisor needs to abide by in order to enjoy success they deserve in the industry. It’s possible that you’ll need to study this at a Master’s Degree level.
Business evaluation jobs
Business evaluation jobs are in abundance, and there is great potential for growth if you aspire to become an executive. The roles can be exceptionally varied, and should you have specialist knowledge of a certain industry, finding an employer that suits your requirements won’t be a problem. Knowing a second language can also be a huge advantage – especially if you’re able to converse with entrepreneurs from the developing economies seen in China, India, or across South America. For high-paying roles, plenty of experience is essential.
Business evaluation models
Business evaluation models go beyond the finances, and actually assess the structure of a company. This allows you to assess a company’s operations thoroughly, and the ways they reach their clients or customers. For example, some online firms might rely on a subscription structure for generating income streams, whereas others may offer attractive franchise programs which allow fellow entrepreneurs to sell goods and services on their behalf. Finding out which model works for your company is crucial, as every industry brings different expectations.
Business evaluation resources
Business evaluation resources are available online and in print – whether it’s from books written by specialists or trade magazines. You want to rely on impartial sources – people who have no hidden agenda, but a passion to help entrepreneurs buy and sell businesses seamlessly. Keeping an eye on the latest developments in the news can also come in handy, not least because you’ll be able to monitor case studies of business acquisitions or sell-offs that have gone well (or badly.) Banks also offer plenty of literature.
Michelle Seiler Tucker
If you want expert advice on business evaluations, it’s important to find someone who has your best interests at heart – and years of experience in working with the movers and shakers of the corporate world. Flair, business acumen see and charisma also help when closing deals. Michelle Seiler Tucker is an experienced business broker who will help you sell your business and get the most money out of the deal. Michelle Seiler has business broker connections nationwide including: Louisiana, New York, Texas, Mississippi, and Illinois.