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Factors Influencing Business Valuation in Minnesota

Factors Influencing Business Valuation in Minnesota Posted on July 1, 2014

Businesses are sold every day. Some sell for more than they are worth, yet others sell for a lot less, and the only person who loses in this situation is the owner who put a lot of time and effort into building the business to where it is today. Before you go to buy or sell a business, make sure it undergoes a Business Valuation in Minnesota to ensure the buyer is paying a fair price and the seller is receiving the monies he or she deserves. Although each business is unique, there are certain factors which influence any Business Valuation in Minnesota.

The main factor taken into consideration during a Business Valuation in Minnesota is the recast earnings. Potential buyers look to the stream of income they may expect to obtain from the business and whether or not it will produce the desired ROI to justify what they are paying for the business. Multiples of earnings are often used to determine a selling price, therefore a business owner will work to maximize the appearance of earnings while sellers need to understand exactly what the earnings are based on.

Tangible assets raise the price of a business, typically by the value of the assets. Buyers and sellers need to remember, however, that earnings have the most impact, so one shouldn’t rush out and buy more assets to make the business look better. An increase in asset value doesn’t correlate to a direct rise in the selling price of the business and, in actuality, some view large sums of capital assets to be a liability, as this equipment must be maintained and replaced in the future. This diminishes the cash flow of the business in the future.

Although most place the greatest importance on the above two factors, other factors looked at during a Business Valuation in Minnesota shouldn’t be discounted. These include the identity of the buyer, the terms of the sale, risk factors, presentation and packaging, and the structure of the transaction. Selling a business is a complicated process. For this reason, many choose to turn to professionals to handle all tasks, including the business valuation, so they can continue to focus on the business as long as they own it.

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