There are many different reasons that a company of any size may needs a business valuation. For any Minneapolis company that is going to be sold this is a first step in determining the asking price of the company based on the actual value or worth of the company.
Often a valuation will also occur if the company is being used as some type of collateral, if there is a change in the partnership or company structure or if the company is looking for outside investors. It can also be used if the company is part of a divorce or other type of legal situation.
Many people assume that a business valuation is basically an objective measure of tallying up the assets and the revenue of a business and subtracting any liabilities and debts. While this is certainly part of the process, there is also a subjective or qualitative element to the process as well.
The Process
The business broker that is completing the valuation will need to have access to current and past information about the financial state of the company. This will include profit and loss statements, specific information on revenues, overhead and operating expenses as well as information on the company’s structure.
Additionally, the process will also take into consideration the overall economy, the specific state or the industry as well as any pending changes that are going to have an impact on the business in either a positive or negative way.
Typically, the valuation will need at least 5 years of financial history for the business, or as many years as available for startup companies or new businesses. Additionally, information on employee payroll, management and the salaries of owners will also be required as well as any contracts or agreements with these groups.
The broker will also need to see information on current vendors and suppliers, customers and clients as well as a full list of all assets for the business. This will include information on equipment or property that is rented, leased or owned and the current status of any financial obligations of the company.
This will all be input into one of the standard business valuation models and a value determined. This may not be the specific asking price for the business, but it will certainly be a starting point in determining the value of the business and how it relates to similar businesses in the same industry and in the Minneapolis area that are also for sale.
