Valuing your business is much more complex than you want it to be.  You want me tell you to “take your forecasted revenues and multiply them by 0.3 and add $100,000” or some easy rule of thumb.  I wish it was that easy.  Here’s the biggest problem – your business is uniquely individual.     Even if you have the 800th Pizza Goober franchise in your town, it’s still operated by you – an individual.  You have cared for it better than your peers.  It’s in a better location than your peers.  You’ve operated it at far less debt.  Your employees and customers are insanely loyal.  You are next to a high tech company that buys pizzas for its employees for lunch constantly, creating windfall lunch traffic for your Pizza Goober restaurant.  Whatever the reason, it’s just not as easy as tossing out a quick number.

In God We Trust, All Others Please Bring Data

There is an inordinate amount of research that goes into valuing your business.  Your appraiser will do a thorough study of the economy in general, the local economy of your business, as well as the industry you belong in.  That’s just the start.  You appraiser is going to input and review 3-5 years of performance data for your company and create a forecast that goes out a number of years.  Your appraiser is going to read all your legal documents.  He/she is going to absorb an insane amount of information about your company.  All that research and number-crunching takes time and experience.  You want your valuation expert to be able to sort through all the data and make a value conclusion that is objective and fair.  Too much is riding on the outcome of your business valuation, you should demand the best.

There Are Almost As Many Ways of Valuing Your Business as There Are Kardashians

There are tons of ways to value your company.  There is book value, net book value, adjusted book value, liquidation value, guideline public company method, direct market data method, discounted future cash flows method, capitalization of earnings method, and the excess earnings method.  There are controlling interests, non-controlling interests, discounts and premiums.  It is important for you and your business that you hire an appraiser that knows which methods are the right methods for your business.

Do You Want A Little Number or a Big Number?

I worked with an accountant who, every time you asked him for a number, he would ask, “Do you want a little number or a big number?”  There is, indeed, a fair amount of subjectivity in the valuation of your business.  However, any business appraiser worth his/her salt, even though he/she might be able to guess at how high a valuation you are looking for given the reason for the valuation, will approach your valuation with complete objectivity.  Telling a client that the company he thinks is worth millions is actually worth a handful of beans is tough, but it is why you should seek out a certified professional.  Knowing the real value of your business gives you some real leverage in planning future steps.

Pick a Certified Business Appraiser That You Like

From experience, I can tell you that there a lot of really great business valuation professionals who do really good work.  I recommend a certified business appraiser because they have been put through a pretty daunting certification process.  I also recommend you pick someone you like working with.  You will be discussing your business and your philosophies in intimate detail with your business appraiser.  You will tell him/her things you may not tell your spouse or the IRS or your accountant.  It’s an intimate process.  Find an appraiser who you think is a pleasure to work with.  It’s your company, it’s your money, and it’s your blood pressure.  Surround yourself with advisors who are easy to work with, who do exceptional work, and who understand just how unique you and your business really are.