There’s an oft repeated urban legend that 9 out of 10 businesses will fail. There’s a variation of this myth stating that up to 95% of restaurants fail in their first year. In 2013, the illustrious Forbes even ran a story called, “Five Reasons 8 out of 10 Businesses Fail.”
Of course, like most statistics, all of these numbers are total junk. First of all, ask five different business owners how they define “failure” and expect to get five different responses. Obviously going out of business is a failure, but what if your company survives for five years? Is that still a failure?
The truth is, about 50% of businesses “fail” in their first five years. Today, in addition to about 20 million LLCs and independent contractors, there are 5.4 million firms with workers. Unfortunately, only a quarter of new businesses will still be around in 15 years.
If you run a business and those numbers don’t make you want to invest in a business valuation analysis ASAP, then you might be one of those future failed businesses. There are a huge number of reasons why business owners and banks might want to use business appraisal services to measure a firm’s worth, but as a business owner, there’s only one reason that matters. Survival.
Just because it’s a cliche doesn’t make it less true. Modern capitalism is a Darwinian affair, and you need all the data available to adapt and survive over the years to come. One of the most important tools in any valuation are small business comps, which allow you to compare sales performance year-over-year. Without this kind of advanced picture of both your past sales and future outlook, you’re flying blind.
Whether as part of a full service business appraisal or on their own, small business comps are one of the most valuable tools in a business owners arsenal. Whether you’re seeking a loan, getting ready to sell, or simply planning for the future, a small business comps valuation is a necessary first step. Fortunately, thanks to the digital age, it’s never been easier to find these kinds of company valuation tools online.
While Fortune 500 companies may have the resources to perform these analyses in house, you’ll want to find accurate valuation tools before it’s too late.