Presented by: Zack Zimmerman, Senior Valuation Analyst, National Business Valuations
Zack has worked with SBA lenders usually involved in buying and selling businesses. He shares the three big things to know about business valuation. The three things are the earnings game, risk mitigation, and market tendencies.
The earnings game is the most controllable part of the valuation for a business owner. Business owners are the decision-makers, the pacesetters, and the ones who create the culture. When we talk about business valuation, we’re essentially talking about how most buyers are going to assume that a business makes money. When we say earnings you really start to dig into two different things: your growth (the size, potential, and growth of the market) and operations (the difference between how much you’re spending and how much do you have to spend).
In risks mitigation, it is important to know your customers, so that you can react, adjust, and drive down certain risk factors. Your relationship with customers is key. Another way to mitigate risk is to know your vendors. This may give you an advantage in terms of being able to acquire inventory.
Market tendencies are not completely uncontrollable, so you definitely want to know and understand how your market is evolving. In business valuation, professionals look can see the number of transactions that are happening in certain businesses or certain industries. Trends in the market are constantly changing, but market tendencies are still a huge factor in your business’ valuation.