Home
>
Small Business
>
Business Valuation is Critical

Business Valuation is Critical

What is Business Valuation?
The term business valuation is the method by which the business worth is determined. This usually happens when the business is for sale, when the business is looking for extra funding from the banks, when the business is considering taking on extra investors, or where the business is looking at merging with another organisation.

Aspects of Valuing a Business
A business is worth whatever someone else is prepared to pay for it and therefore its value will vary from person to person. There are many ways to value a business and the final price will differ, depending on the method used.

When the business is for sale, the price the seller wants is usually never the price received. This is because the seller's perception of the value is usually much higher than the buyer's. The final price is usually in between because the buyer and seller will negotiate an agreed figure.

Value against Ability to Make a Profit
When purchasing a business, obtain professional advice regarding the valuation. You need to be happy that you are not paying more than what you believe it is worth. If you pay too much and encounter financial problems later on, your capital reserves will diminish very quickly, because the business will not perform to the level indicated by the seller.

In general, a business should be valued against the ability it has for making profits. Other factors, such as the ability to generate good cash flows, or the consistency of profits, or a potential for growth and the lack of competitors, will have an effect on the price. Because each business is unique, it is important to use the most appropriate valuation method that does justice to the particular business and it's potential.

Finding True Worth of the Business
If you are buying a business it is important to calculate the true worth of the business on offer. This can be a problem for a prospective buyer. It is for this reason that the buyer should seek professional advice, both from a business valuer or accountant, as well as from a business broker who deals in the type of business offered by the seller.

From the buyer's point of view, buying a business is an investment decision and, as with any other investment decision, the net worth or value will be based upon the ability of the business to provide returns.

These returns are represented by the profits the business makes, so the value of available profits will have a bearing on the net worth (or price) finally agreed to by both parties. An area that requires special attention is goodwill.

Goodwill has many definitions, but one of the simpler explanations for goodwill is; it assumes that because the business has been running with an established clientele or customer base for some time, the clientele or customer base will keep coming to the business for their requirements, thus creating a value known as goodwill.

Price based on Asset Values
When a business is put on the market to be sold, the owner (seller) will ask for a price based on the asset value, plus its ability to generate profits for the potential new owner. Assets could mean; plant and equipment, stocks, branding, trademarks and licences etc. owned by the business. Valuing assets is fairly easy. However, arriving at the true value of the assets is not always straightforward.

For example, the assets would be valued in the books of the business at a different valuation than in the current market. Some assets (such as computers), may be in the business books at $4,000 being the original cost less depreciation, and yet because of the advancement in technology, that same computer could now be worth half that.

A potential owner will therefore only be prepared to pay market value, rather than the original cost, less depreciation. Another intangible asset valued is known as goodwill, (already explained above). Also, another asset, (which can be termed intangible) is intellectual property.

Intellectual property relates to the patents, trademark and other trade secrets and designs, which are owned by the business. Because they are unique to the business they have value.

StartRunGrow (http://www.startrungrow.com) is a global online information organization that specializes in creating, developing and marketing business help information specifically with the aim of "making business easier" for entrepreneurs around the world. The StartRunGrow objective is to become a dominant player in the business help arena providing end to end solutions for the millions of small and medium businesses worldwide who continue to struggle daily with the difficulties of starting, running and growing a successful business.

recurring maid service Buffalo Grove ..

In The News:

The iconic Mary Kay pink Cadillac goes electric with the Cadillac Optiq, available only to the company's top 1% of sales force performers.

Cybercriminals abuse trusted Intel driver to gain kernel access and shut down Windows Defender, enabling undetected malware deployment since July 2025.

Using email aliases for online shopping and subscriptions can protect your privacy by preventing companies from linking your activity across websites.

New research shows AI overlap does not equal job replacement, with knowledge-based roles seeing most integration while physical jobs remain least affected.

Scammers target seniors who avoid social media by exploiting public records like obituaries and real estate filings to steal personal information and money

Recovery team in Italy use AI-enabled drones to detect missing hiker's red helmet, leading to successful recovery after months of ground searches

Google Salesforce system breach exposes business data while scammers use incident to target users with fake security calls and phishing attempts.

Google announces Pixel 10 lineup with Tensor G5 chip and Gemini Nano AI, introducing Magic Cue, Pro Res Zoom up to 100x and satellite emergency support features.

C San Diego study reveals 86% of school safety companies monitor students 24/7 on personal devices, raising privacy concerns.

Users can now add their favorite outlets' coverage to the Top Stories section of Google search results by utilizing the 'preferred sources' feature. With just a few clicks, you can add Fox News.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Interstellar object 3I/ATLAS shows an unexpected frontal glow that Harvard's Avi Loeb says cannot be explained by sunlight reflection or standard cometary outgassing.

Receiving order confirmations for purchases you never made could mean your email address is being exploited in fraud operations targeting multiple retailers.

First wireless brain implant works with Apple's official protocol, enabling hands-free control of iPhones, iPads and Vision Pro through thought alone.

Data brokers sell personal details that scammers use to target retirement funds through fake financial advisor calls and convincing phishing attempts

Ten innovative tech solutions from gait sensors to smart pill dispensers help adults 65+ track fall risks and prevent injuries before they happen.

Meta AI internal documents revealed chatbots were allowed to flirt with children and engage in romantic conversations until the company was exposed by Reuters.

ChatGPT will avoid giving direct mental health advice under new OpenAI rules following instances where the AI model provided harmful or misleading responses.

Your phone tracks you in more ways than that little GPS icon suggests. Here’s how to find and clear hidden location logs on iPhone and Android.

Authorities in France and the Netherlands have been notified. Meanwhile, impacted customers are being told to stay alert.

Apple just rolled out a redesigned Blood Oxygen feature to specific models, following a recent victory in a legal dispute.

Kidney dialysis provider DaVita experienced a ransomware breach by the Interlock gang affecting 916,000 people in the second-largest U.S. healthcare attack of 2025.

A Chinese-made Unitree R1 robot walked Manhattan streets and shopped for shoes as part of KraneShares' $28 million AI robotics fund promotion campaign.

The ShinyHunters cybercriminal group breached Google's Salesforce system through vishing attacks, stealing business contact details and customer data.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

Business Valuation is Critical

Small Business