What's Your Biz Worth: How & Why to Find Out

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:

• The National Association of Certified Valuation Analysts (NACVA), based in Salt Lake City, offers a free service online to help you find a business valuation expert in your area. NACVA provides training, certification and support for professional valuators in cities and towns nationwide. Look for the "Find a Valuator Directory" at the Web site. Visit www.nacva.com. Call (801) 486-0600 or e-mail nacva@nacva.com.
  
  
• Nationwide Valuations offers a variety of valuation levels for small business, depending on your needs. Call (800) 330-5250; visit www.nationwidevaluations.com or e-mail info@nationwidevaluations.com.
  
  
• Arrow Business Appraisers specializes in valuations for small, privately-held businesses of all types, nationwide, from auto repair shops, construction firms and delicatessens, to movers, vet clinics and Web hosts. A basic valuation starts at $690. Visit www.arrowappraisers.com; call (561) 351-1717 or e-mail info@arrowappraisers.com.
  
  
• Halas & Associates offers a computer modeled small business valuation system based on hard numbers. The Halas method does not include subjective items such as reputation or market presence. Visit www.halas.com; call (704) 364-4440 or e-mail hbvs@halas.com.
  
  
• For do-it-yourself types, Value Any Business offers do-it-yourself business valuation manuals for specific types of businesses, such as flower shops, restaurants, video stores, beauty salons, gift stores, clothing stores and others. The manual is $24.95 and has a 30-day money back guarantee. This is the creation of Glen McComb, who runs First Capital Business Investments, a business brokerage and valuation firm in Austin, TX. Call (800) 279-3506 or visit www.valueanybusiness.com.
  
  
• PriceYourBusiness.com offers simple small business valuation software you can access online 24/7. Results are quick and available anytime. Cost is $14.95 for six months. Leonard Kaufman, President, argues that achieving an accurate valuation doesn't necessarily take a complicated formula. Visit the Web site or call (800) 350-3311.
  
  
• Other business good valuation software packages you can use yourself include: BizPricer ($99, call 860-691-0081 or visit www.businessbookpress.com); Business Valuation ($395 from MBAware.com, call 866-236-3404) and Corporate Valuation ($295 from MoneySoft.com, 800-966-7797).