How can market data improve your business valuation?

If you own a business or plan to sell one, you need to know how much it is worth. Business valuation is the process of estimating the economic value of a company based on its assets, income, market position, and future prospects. However, valuation is not an exact science, and it can vary depending on the purpose, method, and data used. In this article, you will learn how market data can improve your business valuation and help you make better decisions.

1 What is market data?

Market data refers to the information and statistics about the prices, trends, and activities of the markets where your business operates or competes. For example, market data can include the sales, growth, profitability, and valuation multiples of comparable companies, the demand and supply of your products or services, the industry outlook and risks, and the customer preferences and behaviors. Market data can be obtained from various sources, such as financial reports, databases, surveys, news, and expert opinions.

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Clint Engler

CEO/Principal: CERAC Inc. FL USA..... 🎯 🌐🧿🚩🌎Consortium for Empowered Research, Analysis & Communication
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Market data acts like that magical mirror from Snow White, but for your business value. It shows you your fairest valuation, warts and all. It lets you strut your stuff with comparable company comps, but also whispers about industry risks like a gossipy magpie. Ultimately, it helps you price your business like a savvy dragon slayer, not a clueless peasant. So get ready to be both proud and slightly paranoid, because market data's about to tell you exactly how much gold your business kingdom's worth.

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2 Why is market data important?

Market data is important because it provides you with a realistic and objective view of your business performance and potential. By using market data, you can compare your business with your peers and industry benchmarks, identify your strengths and weaknesses, and evaluate your opportunities and threats. Market data can also help you adjust your business strategy, improve your operations, and enhance your competitive advantage. Moreover, market data can help you communicate your value proposition to potential buyers, investors, lenders, and partners.

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3 How can market data improve your valuation?

Market data can improve your valuation by helping you choose the most appropriate and reliable valuation method and inputs. There are three main valuation methods: income, asset, and market. The income method values your business based on its expected future cash flows, the asset method values your business based on its net assets, and the market method values your business based on the prices of similar businesses. Each method has its advantages and disadvantages, and the choice depends on the purpose, availability, and quality of data.

Market data can help you apply the market method, which is often preferred by buyers and investors because it reflects the current and realistic value of your business. The market method uses valuation multiples, which are ratios that compare the value of a business to a financial metric, such as revenue, earnings, or cash flow. For example, if the average valuation multiple of comparable companies is 10 times earnings, and your business has earnings of $1 million, then your business value is $10 million. Market data can help you find and select the most relevant and comparable companies and multiples for your business.

Market data can also help you refine and validate the other valuation methods. For example, market data can help you estimate the discount rate and the growth rate for the income method, which are key factors that affect your future cash flows. Market data can also help you adjust the asset method for the market value of your assets and liabilities, which may differ from their book value. Market data can also help you cross-check and reconcile the results of different valuation methods and ensure that they are consistent and reasonable.

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Kingsley Ndimele

Financial Economist || Business Consultant
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Market data is useful for choosing the best valuation method for you business such as market, asset and income. It also helps you to know where and how to apply these data.

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4 How to use market data effectively?

To use market data effectively, you need to follow some best practices and avoid some common pitfalls. For instance, it's important to use multiple sources of market data and verify their accuracy and reliability. Additionally, the data should be specific and relevant to your business size, industry, sector, niche, location, and stage. Furthermore, it should be timely and current, as well as comparable and consistent. Lastly, the data should be adjusted and normalized in order to avoid distortion by one-time events or accounting policies. By following these tips, you can ensure that you are using market data effectively.

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5 How to get market data for your business?

There are numerous ways to obtain market data for your business, depending on your budget, time, and needs. Financial reports of public and private companies, as well as your own business and competitors, can be accessed from websites, regulatory agencies, or databases. Subscribing to databases like BizBuySell, BizMiner, IBISWorld, and PitchBook can also provide market data. Surveys conducted or participated in by customers, suppliers, industry experts, or other stakeholders can be beneficial. Additionally, following news and updates on the markets where your business operates or competes can be useful. Finally, consulting or hiring experts in your industry, sector, niche, or region and using expert opinions published in books, journals, magazines, or reports can be helpful too.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can market data improve your business valuation?

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1 What is market data?

2 Why is market data important?

3 How can market data improve your valuation?

4 How to use market data effectively?

5 How to get market data for your business?

6 Here’s what else to consider

Financial Management

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