Would you like to own a small Fort Lauderdale business or expand your existing Fort Lauderdale business by purchasing a competitor? It may be less risky and easier to purchase an existing Fort Lauderdale company than to start one from scratch. However, the process of determining the value of the business can be difficult. Often, sellers attach a high value to the businesses they built out of a sense of emotional attachment. The purchaser, on the other hand, needs to evaluate the profit potential when determining the price.

Make sure you consult a Fort Lauderdale professional

A disinterested third party with experience in valuing businesses should be consulted in order to obtain a thorough and unbiased estimate of value. A bank, accounting firm, or Fort Lauderdale business broker may be able to provide you with a qualified expert. Depending on the type and size of business you intend to purchase, the scope and cost of the valuation will vary. Various methods may be used by Fort Lauderdale professionals to determine a company’s fair market value.

Calculate the value of the assets

By using the book value approach, also referred to as the tangible asset or balance sheet method, a Fort Lauderdale business can be valued by counting its assets and subtracting its liabilities to determine its net worth, or owner’s equity. If assets represent fair market value and may easily be converted to cash, the resulting value is considered fairly accurate. The difference between book and fair market values requires a calculation of “adjusted book value,” a step often required because tangible assets have been depreciated for accounting purposes, so their actual value is no longer reflected on the balance sheet.

Earnings should be capitalized

The profitability and return on investment of a business in Fort Lauderdale are also important considerations when valuing a business. In order to estimate future earnings, the historical income of the business (either the most recent year, the average of the past few years, or a weighted average of the past few years) is used. Depending on the risk factor, this value is then divided by a capitalization rate ranging from 10 to 100 percent. A business with a 10 percent capitalization rate and a $500,000 annual income, for example, would be worth $5 million. With the same income, a business with a higher risk might only be capitalized at 50 percent and worth $1 million.

Negotiate the purchase price

Sellers and potential buyers will often arrive at different valuations for a business. As a result, the final sales price will be determined by the perceived value of the business in each party’s eyes, the degree of urgency felt by each party and their level of negotiation skill.