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Question: I'm thinking about taking on a partner who would buy into my business. Before that can happen, we both need to know what the business is worth. We'd rather not spend big dollars for a formal valuation or appraisal, but we will if we have to. What are some of the options for valuing a small business? Answer: Placing an accurate value on a small business is a tricky affair. But it's also an exercise that may be necessary for a variety of reasons. Valuations (or appraisals) are a must, of course, for anyone buying or selling a business. But they are also vital for partnership deals such as yours, as well as buy/sell agreements, family business succession planning, personal and estate planning and situations where you need bank or other financing. Other reasons you might need a valuation include divorce, spin-offs, liquidation and business disputes. One of the best reasons for tracking the value of your business, however, is simply this: So you know. Most entrepreneurs are capable of boosting the value of their businesses by 40 percent simply by paying attention to the things that make a business valuable. Too often, business owners brush aside valuations, believing them necessary only if they decide to sell. As a result, only about one in 20 small businesses have done a formal valuation, according to the National Association of Certified Valuation Analysts. You can determine the value of a business in many different ways, from quick and cheap software-based calculations you do yourself, to full-scope, certified valuations by professionals. The price range is enormous, from as little as $15 for the simplest software, to thousands for a detailed analysis performed by certified pros. Business brokers, hoping to sell your business, may even do them for free. Try to match the person or method you use for a valuation with the reason you are doing it. If the valuation is for loan purposes, for example, look for someone who's done small business valuations for that purpose. Here are some top resources and solutions for business valuations:
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Daniel Kehrer (editor@business.com) is Editor at Business.com, the leading business search engine.
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