Many New Jersey residents own their own businesses. Sometimes, this is just a small, part-time operation that supplements income from a husband and wife’s day jobs. At other times, the business really takes on a life of its own and becomes the means of a couple’s support and livelihood. Many small, privately-held businesses in New Jersey give families the ability to live a very comfortable life.
Outside of getting ready to sell, there are times in one’s life when it is necessary to put a value on these small businesses. While divorce is one such time since the value of the business will affect property division, it is good to know how to value a business for other reasons, like for purposes of estate planning.
One way to put a value on a small business is to hire an appraiser or accountant to review the books and give his or her expert opinion. After all, there are many factors that can influence the value of a business, and some of these are not evident with someone who does not have a background in business valuation. Still, an appraiser’s word is not gospel, as they cannot guarantee what a willing buyer would pay for a business, and their underlying assumptions are not always correct.
In this respect, it is also helpful if a person knows how to ballpark the value of their family business. Generally speaking, economists think of the worth of a business in terms of how much income it is going to produce over time times a number that really depends on the nature of the business itself. One should note, though, that income, cash flow, and profits are all very different concepts, so just looking at a business’s revenue just doesn’t always give a complete picture. Even a large business can rake in millions or even billions without profiting a dime.