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Understanding the business valuation process

There are many reasons why Kentucky residents decide to sell off their business. Sometimes they grow tired of running it or need access to funds from the sale. Other times, a business is sold as part of a divorce settlement or through the probate process. One of the first steps you’ll need to take as you move to divest yourself of this asset is to seek a business valuation. The professional that you hire to do this will weigh various factors to determine what your Shelbyville company is worth.

What is a business valuation, and who performs one?

It’s not uncommon for some to compare a business valuation to a home appraisal. The goal in both cases is to gain some perspective on the market value of a particular asset. Assessing the value of your business involves an analysis of your company’s financial records. While this is something that you may easily do as the owner with all that information within reach, you may find it best to have a seasoned financial analyst such as an accountant crunch the numbers for you to make sure that they’re right.

What figures into a business valuation?

There are various approaches that an appraiser can follow to determine your Kentucky company’s worth:

  • The historical approach: An appraiser who performs a historical earnings-based valuation will likely allow your company’s gross income and, more specifically, how consistent it is with income generation, to affect your businesses’ worth. 
  • The relative method: Relative valuations involve a determination of what a company would sell for if you placed it on the open market. They’ll generally compare your businesses’ assets to another company with similar ones to arrive at an amount.
  • The asset-based method: The way that an appraiser performs an asset-based valuation is by calculating what you’d have left if you were to sell off your company’s assets and pay off any liabilities.

What you should do if you’re preparing to sell your company?

There’s a lot that you must do as you look to put your Shelybville business up for sale until you sit down at the table and finalize its purchase. An experienced business law attorney will know the steps to take at the right time and can advocate for you and your interests every step of the way in that process.