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How Does a Buyer Calculate the Value of a Business

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					How Does a Buyer Calculate the
    Value of a Business?



 Understanding the Value of Your Business




Visit us to get your free guide to selling your
                   business:

     http://www.mergeradvisorsnetwork.com/
Often, clients ask us the following:
"I would like to sell my business, but I’m not sure what it’s worth." Is there a
market value for companies? Should I pay for an appraisal?"
Overall, clients want to know "How do I value my business?" or how much a
business is worth.
The fair market value of a company is based on what a buyer will pay for it.
Usually, an expensive appraisal is not worth spending money on. While many
brokers will sell appraisals for many thousands of dollars, appraisals do not
determine the value of your company. Buyers will use their own analysis to figure
out what your business is worth to them. They will most likely not even consider
any paid appraisal you might have, because it does not consider all the factors
                                                   that are pertinent to them.


                                                                             Appraisals are useful from
                                                                             time to time, but generally,
                                                                             these occurrences are where
                                                                             the buyer and the seller are
                                                                             closely related, like a
                                                                             shareholder dispute,
                                                                             partnership dissolution, or
                                                                             divorce.
                                                                             Potential buyers will consider a
                                                                             variety of factors in their
                                                                             estimation of the value,
                                                                             including
                                                                             1.     What will the debt
                                                                             service be on the business?
                                                                             2.     What will they plan as a
                                                                             reasonable salary for
                                                                             themselves or a manager to
                                                                             run the business?
3.      Does the risk profile of the business make it more or less valuable? Are
there customer concentration issues, short or long term customers, vendor
reliability issues, etc.
4.    Will they receive a respectable return on the cash down payment over a
reasonable length of time? Will this be better than the return of the current
mutual fund portfolio market?




Brought to you by: Merger Advisors Network – Visit our website: http://www.mergeradvisorsnetwork.com/
A simple way to estimate the potential value of your company follows:
1.        Calculate the real (not tax) profit that your business creates.
2.   Add back personal expenses that are rolled into business expenses and
unusual expenses that a buyer won't incur. This is your true cash flow.
3.    Honestly consider if your business type is declining, steady or part of a hot
market. Do not base this on intangible “blue sky” ideas.
4.        Is credit available from commercial banks or other sources?
5.    Multiply the true cash flow by a factor of 2 to 8 depending on where your
answers to 3 and 4.




Merger Advisors Network can help you whether you have a business for sale Los
Angeles or elsewhere in California or the United States. Merger Advisors
Network advisors can help you get an estimate of a sales price for your company.
Our professionals are experienced at this sort of valuation, and can help you with
questions like this, as well as how to prepare your business for sale, when you
should be selling a business, and similar questions.




Brought to you by: Merger Advisors Network – Visit our website: http://www.mergeradvisorsnetwork.com/
          Visit us to get your free guide to selling your
                             business:

                     http://www.mergeradvisorsnetwork.com/




Brought to you by: Merger Advisors Network – Visit our website: http://www.mergeradvisorsnetwork.com/

				
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posted:8/5/2011
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Description: Learn how a buyer calculates the value of your business.