It’s always hard to talk about valuation when you’re talking about your own company. How could you put a price on all of your hard work over the years? It is something however, that needs to be done for many small businesses as they expand and look for funding opportunities and areas for growth. It’s important for small business owners and entrepreneurs to not get emotionally attached to the process. Rational and objective perspectives will help keep all parties involved happy.
If you’re seeking capital or investors for your business, you’ll approach your valuation differently than if you are already established. Without documentation that shows how your product sells or how your process or technology is patented, potential investors will look to value your company based on your own vision, drive and personal research. Have you identified a market need and adequately worked to fulfill the need for consumers? Can you be differentiated from your competition? How valuable is the industry you’re working to enter as a whole? Often, these early investors will provide you with funding in exchange for a percentage of ownership in the company, and can provide you with set terms for buyback if you are successful.
If you already have your business set up and running, you are most likely to use your sales reports, financial audits, profitability trends and other hard data to make the case for your business’s value. If you’re not looking to sell, the investor will most likely be helping to maintain a steady cash flow as good collateral against their investment. A CPA will be able to help you with all of these financial health documents.
The process of valuation is especially complex before bringing in another partner into the firm or selling the organization outright. All parties must be in agreement on how the valuation and assets will be arranged in the new partnership. Lawyers can help make sure that everyone begins the new partnership on the right foot to make an immediate impact in the business’s outcomes.
This article was written by Gillian Kruse of Examiner.com for CBS Small Business Pulse.