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Q.How do I value my business, or set a selling price for my business?
A.When selling a business, you must evaluate and demonstrate the value of the business. This usually involves assembling and analyzing the appropriate materials, including the company financials (cash flow, balance sheet, etc.) and tax returns for the past three to five years. Potential buyers of a business will want to understand your business' operations and past financial performance.
Before setting a firm selling price, you will want to consider "recasting" your financial statements to eliminate the effects of: (a) having run your business to reduce taxes; (b) engaging in transactions with related companies; and (c) otherwise shifting some expenses to the business which could also be classified as personal. These adjustments may increase or decrease the balance sheet, or other metrics upon which the business is valued.
We also strongly suggest that before you set a firm price, that you seek the aid of a business appraiser. Business valuation methods vary and the best method will depend on your individual situation.
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