Determing What Your Business is Worth
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- Balance sheets and income tax returns for the past three to five years.
- Income statements.
- Record of accounts receivable and accounts payable.
- Copies of any mortgages or loan notes.
- Lease agreements.
- Current contracts with employees, customers and suppliers.
- Corporate books if your business is incorporated, or partnership agreement if your business is structured as a partnership.
- Patent, trademark or copyright certificates.
- The book value method essentially subtracts your liabilities from your assets. Fixed or tangible assets include everything from machinery and equipment to inventory, guaranteed receivables and prepaid expenses like taxes and deposits. Your liabilities will include those items that reduce your selling price, such as salaries, bills and periodic expenses, bank notes and loans, and federal, state and local taxes. The primary disadvantage to this method is that it does not consider the earning potential of your business.
- The capitalized earnings method takes into account your business's expected income or profits. However, since most businesses deduct everything legally possible to reduce taxes, the profit margin may seem smaller than it actually is. To counter this problem, prepare an itemized profit-loss statement that shows the surplus cash your business produces, instead of just the final profit statement for taxes.
Again, a qualified, independent professional business appraiser should always be considered.
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