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  1. How Intangible Assets Work in a Business Valuation Intangible assets are those assets without physical form. These assets include intellectual property like patents, trademarks, and copyrights. They also can include contracts and licenses, technology, and customer relationships. No business valuation should be undertaken without considering the value of intangibles. This article discusses the different types of intangibles and how they provide value to a business. How Financial Statements Are Adjusted For a Business Valuation Before a business valuation report is prepared, the company's financial statements are adjusted, to remove discretionary items and one-time occurrences, and to bring accounts to current market value. thebalancesmb.com
  2. If you are considering selling a business, here is a list of documents and information you will need to put together. The type of information you will need depends on the purpose of the valuation. Basic information includes a company history and description of the company and governing documents (bylaws for a corporation, for example. Information on employees, benefits and pay, and benefit plan costs The company financial statements, including balance sheet and income statement Tax returns for the past few three to five years Detailed information about all company assets, including intellectual property, and liabilities Current legal issues, including any litigation or other disputes in the process. This article about information for business valuation has more details on what is included in the appraisal. thebalancesmb.com
  3. An appraiser is an individual who estimates the value or worth of something. An appraiser sets a value on a property or other assets, including the assets of a business. There are many different kinds of appraisers, many of whom specialize in various types of appraisals. An appraiser is an independent disinterested person who has specialized training and certifications. and uses specific standards to value business property. Appraisers use financial analysis ratios, physical review and inspection, and industry comparison. To find an appraiser, see the American Society of Appraisers website for a list of certified appraisers. thebalancesmb.com
  4. Things happen, in business as in life. Just as you should always have a resume ready, and you should keep your business plan updated, you should prepare a business valuation and update it every year. Something could happen to you, like death or being disabled. You might be able to take advantage of an opportunity, like an unexpected opportunity to sell the business or do a joint venture. To add a new partner or LLC member to your business, or when a partner leaves, you will need the valuation to determine the buy-in or buy-out price. You may be thinking about leaving the business. Getting a business valuation is one of the first steps in creating your exit strategy. To expand your business with a loan or new equity, you'll need a business valuation done. When a business disaster happens, it's too late to do a valuation, but having a pre-disaster valuation helps with insurance and getting back on track. Personal life changes like a divorce can also trigger the need for a business valuation. thebalancesmb.com
  5. Every business should have on hand a business valuation, which is updated every year. Like a current resume and business plan, a current business valuation can allow you to take advantage of opportunities, protect your family in case something happens to you, and allow you to move quickly when you are ready to sell your business. What is a Business Valuation It's a process similar to an appraisal for a home sale, in which a business appraiser inspects and analyzes the entire business. This process usually includes valuation of assets (including depreciation) and other factors. Businesses can be valued in several ways, depending on the circumstances of the valuation (sale or bankruptcy, for example). If a business is being offered for sale, more than one valuation method may be presented, s part of the business valuation report. Sections of a business valuation report, including an economic analysis, industry analysis, and discussion of valuation methods used. thebalancesmb.com
  6. Avoid large upfront fees: A business broker fee ranges from 10% to 15% commission of the sale price of your company. Avoid any broker asking for a large upfront fee to assess your business value or start an application process. Avoid the pressure: Never allow your business broker to put you in a pressure situation. Do not make a rash decision. The selling of your company is a complex transaction, personally and professionally. Take the time to learn and clarify all uncertainties. thebalancesmb.com
  7. Keep it a secret: Avoid losing key staff and suppliers by telling them your business is for sale. It should be a highly confidential matter. Your business broker should ensure all safeguards are in place to protect your company. One premature word to your suppliers, employees, or customers that you are selling the company can have repercussions on your business operations and any potential sales. Deliver a marketing plan: Selling your business is all about marketing. Properly positioning the sale of your company to attract and motivate as many buyers as possible should be your goal. Ensure your business broker has a marketing plan including details of advertising strategies to attract a wide range of potential buyer leads. thebalancesmb.com
  8. Do due diligence: Just as a prospective buyer of your company will exercise due diligence, so should you. Examine your broker's background, experience, and credentials. Are there any lawsuits or complaints against them? Check the Better Business Bureau. Investigate their references. Have they handled sales of your type of business before? Find a dedicated practitioner: A business broker who spends all of their time selling businesses will add more value to your sales transaction than a part-time agent. A full-time business broker brings in a network of contacts and typically has a fuller understanding of the principles of business valuation. Find someone who is dedicated to the profession. If your company may be worth millions, consider merger and acquisition intermediaries. IBBA's code of ethics is a useful reference tool to use during your search. thebalancesmb.com
  9. Get referrals: If possible, always start with a referral from a trusted source. Ask your accountant, lawyer, peers, and industry association for names of good business brokers. Use IBBA: The International Business Brokers Association is a nonprofit trade association that offers education, networking, and professional training through conferences and otherwise. It's also a good resource for finding brokers who are in your area and familiar with your type of business. IBBA works with more than 1,000 business intermediaries around the world. thebalancesmb.com
  10. Selling a business for a high price usually is the result of years of dedication and persistence and a dream for many entrepreneurs. However, finding buyers for your business can be difficult if you aren't in a hot industry or lack unsolicited offers. An option to gain access to a larger pool of buyers and a structured selling process is to consider a business broker, which is similar to a real estate agent. Business brokers provide the match-making service of bringing together buyers and sellers. The right broker can help your business to fetch the best possible price in a sale. Finding a Business Broker in 8 Steps If you aren't already working with a business broker, identifying the best person for your sale requires doing some research and familiarizing yourself with the process. Good brokers help businesses find sources for potential buyers and navigate other complexities involved with sales. Working with your team of professional advisers and following eight key steps is a good start to connecting with the right broker and getting the most out of your business sale. thebalancesmb.com
  11. Intellectual property 19. Protect your intellectual property If you develop a new product, you’ll want to protect it with a patent. You can also protect your business name, symbols, and logos by applying for a trademark. You can learn more about the process through the United States Patent and Trademark Office. To protect books, movies, digital work, and musical pieces, you’ll want to copyright your work. The United States Copyright Office can help you file the correct paperwork. Finance law 20. Bankruptcy Though we hope you never have to go here, in some cases, new businesses hit financial roadblocks. If your business has cash flow problems and is exploring the possibility of bankruptcy, there are several laws you’ll want to familiarize yourself with before filing the paperwork. The Small Business Association has the resources you’ll need to review. Researching business laws can be a tedious task, but it’s always best to be informed. While the list above covers a lot of legal ground, additional laws may pertain to your business. To protect yourself, find an experienced attorney and talk about laws that are specific to your business. bplans.com
  12. Healthcare laws 17. Affordable Care Act In the last few years, healthcare laws have drastically changed. The new Affordable Care Act impacts every business. Prepare your startup by reading about the new healthcare policies. 18. Healthcare privacy If your small business offers healthcare policies that can be accessed online, you’ll need to come up with a security plan for this data as well. If the information is ever breached, there are rules in place to notify those affected. bplans.com
  13. Online business laws 15. International sales laws With a website, any business can sell their products internationally. It instantly opens your business to a new audience, but that exposure comes with regulations. It poses questions about shipping, various taxes, and customs. The FTC has a guide to help you navigate the international waters. Privacy law 16. Data security If your business collects sensitive personal information from its customers, you must have a sound security plan in place. Aside from keeping the data under lock and key, you should only collect the information that you need, nothing more. The FTC has a guide to help businesses put a plan in place. bplans.com
  14. Advertising and marketing laws 13. Telemarking Sales Law If you plan to sell products by mail, phone, or online, you’ll need to brush up on the FTC’s telemarketing rule. Under this rule, businesses must ship products within 30 days, provide delivery notices if a product is delayed, and give refunds if an order can’t be filled. You’ll also want to check out the rules surrounding the Do Not Call Registry. Online business laws 14. Sales Tax Collection Owners of a brick and mortar storefront charge a sales tax that’s required in that specific area, but what if you have an online business? According to the FTC, if your business has a physical presence in a state, such as a store, office, or warehouse, you must collect applicable state and local sales tax. Of course, some states don’t have any sales tax. You’ll want to read the FTC guidelines and check with your state’s revenue agency to make sure you comply with the law. bplans.com
  15. Advertising and marketing laws 11. Truth in Advertising and Marketing Just as it sounds, this law requires all advertising or marketing efforts to be truthful. In addition, if you make any claims during an advertisement, you must have proof to back it up. You can’t ever be misleading or unfair. This rule becomes even more specific when you market to children or use endorsements. 12. CAN-SPAM Act Did you know there is an email law? It’s true. The CAN-SPAM Act regulates commercial emails. The law requires honesty and bans deceptive subject lines. In addition, you must tell recipients where you’re located and give them an easy way to opt-out of your email messages. bplans.com
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