What is a small business valuation?

Small business owners always have questions about valuation methods and purposes.

Most owners want to know: What is a small business valuation?

Well, to be honest valuation methods are the same regardless of the size of the revenues or assets of the company. Most of the difference lies in the details of the financials. Many small businesses do not prepare monthly financial statements and may not even have professionally prepared tax returns. This may present one of the few differences in valuing a large company and a smaller company.

There are 3 ways to approach any valuation. Income approach, asset approach and market approach. Each approach has certain procedures and analysis involved.

The valuation expert will look at many financial aspects of the company including cash flow, asset structure, debt and equity issues, just to name a few. If there are good, clean financials, prepared by a CPA or accountant, then the valuation expert should be able to prepare the financial analysis and valuation with sound historical numbers.

If a valuation expert has experience valuing businesses of all sizes and is accredited in business valuations, meaning they have a credential for valuations, then they should be well-equipped to handle the valuation of a small privately held business.