What does a Business Appraiser do?
A business appraiser provides a fair opinion of the value of a business. There are many aspects a business appraiser considers when determining the value of a business. Besides analyzing the financials, the appraiser also looks at the business operations, sales, and management team. Each of these can add or subtract a significant amount from the value of the business. It is important to understand each of these areas and how they can impact the value.
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Analyze Company Financials
First, and foremost a business appraiser will look at a company’s financials. The financial history and projections of the business tell a story. The appraiser performs a financial statement analysis. This is essentially digging into the income statement, balance sheet, and cash flow statement. The valuation expert will calculate several financial ratios. They then benchmark the ratios to determine how the company is performing relative to competitors.
Having strong financials is key to building a successful and more valuable company. One of the best ways to begin tracking financials is by hiring a bookkeeper or accountant. The more complete your financial statements are the more accurate information the appraiser can use. Keeping your financials clean can help you understand where your business is struggling and areas to make improvements. Tracking your cash flow can also help determine if the cash level is meeting business needs.
Determine the Efficiency of Operations
A business appraiser also considers the operations of the business and how key performance indicators compare to similar businesses. A business underperforming relative to their industry will usually have a reduction in value as the appraiser considers how similar companies are operating.
Efficiency in operations is important. The appraiser will analyze financial ratios, operating margins, as well as trends in the data.
Look at Trend and Consistency of Sales
The most important part of your business is sales or creating revenue. You cannot have a profit without first having revenue. A business appraiser will consider what the current trend of sales is, where they are coming from, and the consistency of the revenue.
Recurring revenue can dramatically increase the value of your company. This is because it creates more consistent revenue streams. Recurring revenue also stabilizes your cash flow. Companies that operate with one-time transactions usually receive a lower valuation multiple than those with a recurring revenue model. There are several ways to increase sales through recurring revenue models. Some of these models include subscriptions, membership groups, service contracts, among others. Click here to discover how you can grow your business through recurring revenue.
Determine Strength of Management Team
Last, the business appraiser will consider the strength of the management team. Is the business dependent on the owner? If so, the company is often more difficult to sell and less valuable. Whereas, if there is a strong management team in place it may drive up the value and be more sellable.
A strong management team helps ensure the company will continue to succeed with a change in ownership. A management team can help continue key relationships and revenue. Prior to selling, make sure your business is not owner-dependent. A few tips to do this include creating a strong management team and building recurring revenue. In addition, it is important to delegate decision-making and problem-solving, document key information, and create an exit strategy.
Summary
A business appraiser considers many aspects of your business when performing a business valuation. It is more than just a numbers game. Many online valuation services will value your business only based on numbers. Hiring a business appraiser is the best option to understand the fair market value of your business. A business appraiser can also be a trusted source to understand the strengths and weaknesses of your business and give you tips to grow your business.
Peak Business Valuation, business appraiser Utah, is here to help you build a business that thrives. We are happy to answer any questions you have! As one of the best business appraisers, we love working with individuals looking to buy a company, sell a company, or grow their company. Click the link below to schedule your free consultation today!
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