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Gather information about the business. Use the law of supply and demand to inform your base valuation of the property.- Look around. Note the sale price of any other similar businesses in the area. This will help you get a general idea of what that type of business is worth.
- You're likely to come up with a fairly wide range of prices. Try to mentally place the business you're evaluating somewhere along that range to get an initial assessment.
- Feel free to ask business owners if they have an estimate of the value of their business. Many won't have a number ready offhand, but some might.
- Examine assets. Just as important as knowing the likely asking price of the business you're examining is knowing what assets it has. There are two ways to assess the assets of a business:
- The liquidation value method looks at the cash value of the business if all of its hard assets (things like furniture, equipment, property, and goods for sale) were to be sold off. A thorough inventory of hard assets is required for an accurate liquidation value.
- When using this method, it's important not only to get a good idea of how much each hard asset might sell for, but also how likely it is to sell quickly.
- The income capitalization method supposes that the business will remain in operation after it is sold, and projects future income based on the business's past performance. Detailed financial records are helpful in estimating income capitalization.
- If you evaluate a business's assets using income capitalization, be sure to account for operating costs and other expenses.
- The liquidation value method looks at the cash value of the business if all of its hard assets (things like furniture, equipment, property, and goods for sale) were to be sold off. A thorough inventory of hard assets is required for an accurate liquidation value.
Use the law of supply and demand to inform your base valuation of the property.
- Look around. Note the sale price of any other similar businesses in the area. This will help you get a general idea of what that type of business is worth.
- You're likely to come up with a fairly wide range of prices. Try to mentally place the business you're evaluating somewhere along that range to get an initial assessment.
- Feel free to ask business owners if they have an estimate of the value of their business. Many won't have a number ready offhand, but some might.
- Examine assets. Just as important as knowing the likely asking price of the business you're examining is knowing what assets it has. There are two ways to assess the assets of a business:
- The liquidation value method looks at the cash value of the business if all of its hard assets (things like furniture, equipment, property, and goods for sale) were to be sold off. A thorough inventory of hard assets is required for an accurate liquidation value.
- When using this method, it's important not only to get a good idea of how much each hard asset might sell for, but also how likely it is to sell quickly.
- The income capitalization method supposes that the business will remain in operation after it is sold, and projects future income based on the business's past performance. Detailed financial records are helpful in estimating income capitalization.
- If you evaluate a business's assets using income capitalization, be sure to account for operating costs and other expenses.
- The liquidation value method looks at the cash value of the business if all of its hard assets (things like furniture, equipment, property, and goods for sale) were to be sold off. A thorough inventory of hard assets is required for an accurate liquidation value.