How to Approach Business Appraisal and Valuation

How to Approach Business Appraisal and Valuation

When you choose an auction as your platform for business liquidation, the appraisal is an essential step. An accurate business appraisal will ensure the best valuation of your property and assets and set you up for the best selling bid. Business valuation is complex because there are a lot of factors that need to be considered. The process of appraising your business can be measured three ways: through an asset approach, a market approach, or an income approach.

    • Asset approach – The asset approach looks at a business’s value through an assessment of assets and liabilities. The appraisal process for the asset approach is a measurement of possibilities and predicting how much it will cost for to create a similar business with the evaluated items, whether those items are tangible, like pieces of equipment, or intangible, like the imagination behind the products that bring people to the business.

 

    • Market approach – The market approach to business appraisal is the process of examining current market trends and using other similar businesses as a value baseline. Much like checking the list price of homes in the neighborhood you are buying or selling a house, your appraiser will see what the average list and selling prices are of businesses like yours. Depending on when you decide to liquidate your business, this approach can be incredibly lucrative or result in a disappointing sales price.

 

  • Income approach – The income approach examines the expectations of making a profit of a business. Business appraisal with the income approach can be used in two ways: calculating the capitalization rate and finding the business value or by discounting the cash flow, which is essentially calculating the cash you’re are projected to make and subtracting that from your business’s overall value at the end of a determined time.

Talk with your appraiser about the best approach to take. As the seller/previous owner, you may value certain aspects of your business that potential buyers/owners will not see as valuable or essential. Your appraiser can give you a calculated perspective on the value of your business and works in your best interest to get the sale price you deserve.