Want to know how to earn up to 14% on your holdings with business banking? We’re going to show you how, plus all the other considerations you’ll have when you open a  business bank account. We'll help you understand why you should open a business bank account, what you need to open a business checking account for each type of business structure, how to choose the right bank account for your business, and introduce you to some of the best business bank accounts. Once you are done with this article you should be ready to open a business bank account online. Let's start with the reasons you'll want a business bank account.

Step 1. Reasons for starting a business bank account

You'll want to open a business bank account for the following reasons:

1. Separate your business and personal finances
2. Easier tax filings
3. Customer purchase protection
4. Build small business credit
5. Develop a relationship for better banking services

We'll look at each of them to help you better understand how they impact business.

Separate your business and personal finances

You need to have separate personal and business accounts If you are running a: C-Corporation, Non-Profit Organization, or other business structures that are considered a separate entity, . If you do not, it is possible for courts to consider the business and yourself the same entity. If you'd like to learn more on that, read about 8 case studies that pierced the corporate veil. Keep reading for more benefits of opening a business bank account.

Easier tax filings

Another benefit of opening a business bank account is that it makes filing taxes easier. I've made the mistake of keeping my business funds in my personal checking account, and it makes finding all my earnings and expenses nearly impossible. The ease of tax filings is probably the best reason to open a business bank account. Keep reading for other reasons to open a business bank account.

Customer purchase protection

Business bank accounts have additional features that personal checking accounts do not offer. One type of business bank account that people can open is a merchant account. A merchant account will issue customer refunds even if you don't have the money in your business checking account to cover it. A good refund process helps improve your experience when a customer doesn't get the product, the charge was fraudulent, or the product was defective. It will charge the company a chargeback fee and can raise processing rates if there are too many. Check out the blog about chargebacks to learn more

Build small business credit

A small business checking account can be a stepping stone to lines of credit for small businesses. If you have a business checking account, your business can qualify for Net-30 vendor loans that will start to build your small business credit score. In addition, the bank will be monitoring your account to see what services they think would be good for your business. If you receive an email or mail from your bank inviting your business to apply for a credit card, line of credit, or other services, that probably means you'll qualify. Keep reading for another benefit of opening a business checking account.

Develop a relationship for better banking services

Opening a business bank account accomplishes two major business goals:

1. Develop a relationship with a preferred lender.
2. Develop personal relationships.

The two of these go hand in hand. It's normally better to interact with a bank before asking it for a loan. While they will attempt to work with you, they will work harder for you if they like you. My sister and her fiance have an extraordinarily high success rate in home offers and finances because of how they manage the human aspect of the business. The same can go for banks. In addition, you never know who you'll meet in a bank. Relationships are crucial to getting ahead in business, and financial contacts are some of the best to have. They understand their business better than most and know how to break it down so it makes cents (pun intended). Go into the bank and be friendly with the people waiting in line and those helping you. Make sure to have business cards on you. I have gotten customers this way. You can too! Those are the reasons to open a business bank account. Let's look at what you need to open a business bank account online or in person.

Step 2. What do I need to open a business bank account?

There are normally three requirements to open a business bank account. The most common business bank account requirements are:

1. Proof of your identity
2. Business documents
3. The minimum funds to start a business bank account

Let's start by looking at the personal documentation.

What personal documentation is required to open a business bank account?

Like a personal checking account, setting up a business bank account will normally require two to three forms of personal identification. Credit and debit cards normally work at banks in Nevada, Michigan, Florida, and Texas. You'll have to check with the individual bank in other states. You'll need to provide or know:

• Your name, birthday, and social security number
• Contact information including address
• Proof of ownership percentage
• A government-issued photo ID, such as a driver’s license or passport

In addition, you'll need documentation of the business as you gather what you need to open a business bank account.

What documents are required to open a business bank account?

When wondering how to open a business bank account, you'll have to get your business documents ready. If you haven't already chosen a business structure, applied for an EIN, and registered your business license, you'll need to do those first. We'll cover what you need to have when opening a business checking account for:

• Sole proprietors
• Limited Liability Companies
• Corporations
• Partnerships

Check out our how to build a business article if you haven't already started your business.

Sole Proprietorship or DBA Checking Account

Most business checking accounts will require the following documents before they will allow you to open an account for a sole proprietorship:

• Business name and DBA if applicable
• Business location address
• Employer identification number, or EIN (Some banks will let you use your social security number.)
• Industry of business
• Business name registration certificate
• Business license

Can I open a business bank account without an EIN?

Whether you can open a small business checking account without an employer identification number depends on the financial institution if the account is for a sole proprietorship or single-member LLC. You don't need an employer identification number unless you are hiring employees because the business income is considered the owner's personal income. If you are opening other types of businesses, you will need an employer identification number, especially for corporations because the owner counts as an employee. Next, let's look at what most business bank accounts require for limited liability companies.

Open Bank Accounts for LLC

Limited liability companies will need the following documents when applying for a business account:

• Business address.
• Employer identification number. If it is a single-member LLC, some banks will let you use your social security number.
• Industry or type of business.
• Articles of organization, LLC operating agreement, and business license.
• Multi-member LLCs will need the personal information of all owners that own over 25% of the company. Bank of America has a useful guide by zip code of what you need for each type of business. Check your area at the bottom of the page.

Keep reading for what is needed for an incorporated bank account.

Opening Bank Accounts for Corporations

Corporations will need some unique documents, primarily the articles of incorporation and corporate bylaws. Small business owners will need to provide a variety of business documentation to open a corporate account. The most common documents are:

• Business address
• Employer identification number, or EIN
• Industry or type of business
• Articles of incorporation, corporate bylaws, and a business license

Because a C-corp is a separate legal entity from the people involved, it is necessary to receive payments and pay vendors from a business checking account. If you mix personal funds with business funds, you risk nullifying the liability protection of the business. Keep reading to learn how to get a business account for a partnership.

Open Bank Accounts for Partnerships

Partnerships will need the following documentation when opening business bank accounts:

• Personal information for all partners with 25% ownership or more
• Business name and DBA or trade name (if applicable).
• Business address.
• Employer identification number, or EIN. (Sole proprietors and single-member LLCs may be able to use their social security number).
• Entity type and industry/type of business.
• The partnership agreement, business name registration certificate, business license, and state certificate of partnership.

Now that you understand what documents you need to open a business bank account, let's look at the features and types of small business bank accounts.

Step 3. Choosing the type of business bank account you want

Before discussing how to start a business bank account, we should discuss the features and types of accounts that are available to small businesses. There are four main types of accounts:

1. Business checking account
2. Business savings account
3. Merchant Account
4. Credit Card Account

Let's start by looking at features.

Features of business bank accounts

When choosing an account, be sure to consider the following questions and how important they are to you: [su_note note_color="#dbeafc"]

• Is there a monthly fee? If so, how much per month?
• What are the minimum balance requirements?
• Are there limits or transaction fees on withdrawals, deposits, or other transactions?
• Is there ATM access and what are the limits on it?
• What wiring, transfer, and payment capabilities are available? How often will you use them, and are there restrictions or fees for those financial services?
• What are the incidental fees for items like stop payment, nonsufficient funds, and overdrafts? This item is really important because cash flow can be unpredictable during the early stages of a company and during certain times of the year.
• What online and mobile banking features are available? App? Mobile check deposit?
• Do they have additional features that matter to you like automatic bill pay and invoicing?
• How easy are integrations with other business tools? Warning: online banks like Varo and Chime have some great personal interest rates, but they often poorly integrate with Plaid, which is a common way of connecting banks to other platforms. Be careful with strictly online banks.
• What money management tools does the bank offer?
• What are the interest rates? Are the interest rates tiered?
• What are the rates and perks on their credit card accounts? Are business credit cards better than personal accounts?
• Are personal bank accounts better for your needs? If so, pass-through income businesses can open a separate checking account and use a personal bank account with a separate.
• payment processor
• Where is the nearest bank branch to you or your business? This will matter if you accept cash or cards.

[/su_note] Now that you know some of the considerations when choosing an account, let's look at the main types of accounts.

Why You Should  Open a Business Checking Account

I'm assuming anyone who is a business owner has opened a personal checking account before. A business entity can get a checking account with similar features. They are virtually the same thing, but you can add merchant services, employee business debit card purchases, and integrations with other companies' software on a business account that you cannot add on a personal checking account.

Reasons for Opening Business Savings Account

A business savings account is intended for long-term savings. A savings account for business may have higher interest and higher minimum business deposit balances than personal savings. The Federal Reserve suspended Regulation D requirements of six or fewer transactions in a statement cycle during the pandemic, but at some point will probably reenact them. You can use the savings account to:

• Earn interest
• Save business profits
• Transfer your earnings on a weekly basis
• Save for major business purchases
• Overdraft protection
• Save for taxes

Let's look at a special type of business account that is for handling credit card payments.

Consider Opening a Merchant Account

A merchant account is sometimes referred to as merchant services. Merchant services are a special type of account that can be used to accept credit card payments for businesses. You'll need a business checking account to open merchant accounts. These services are often comparable to Paypal or Stripe business credit card processing, but will vary in four primary ways:

1. Typically, Paypal and Stripe offer more features than merchant services.
2. Merchant services will normally have fewer transaction fees than Paypal or Stripe.
3. Merchant services will normally have tiers where higher transaction volumes (in a number of transactions or dollars per month) come with lower transaction fees.
4. Merchant services may require a credit check, while Paypal and Stripe do not.

Step 4. Which bank is best for business accounts?

Choosing the best bank for business is a matter of personal preference. Instead of telling you which ones are best, I think it makes sense to tell which ones are best at a certain aspect of banking. Honestly, all the choices are bad. You can either have:

• A truly free account with no monthly maintenance fee and not be able to deposit cash easily
• Cash payments at a physical location and a monthly maintenance fee
• You have to choose between the two unless you plan to have $5k-100k sitting around at all times, which I hope you don’t because that should be earning interest.

Because of the trade-offs that business bank accounts require, my suggestions are going to be way different than normal.

Lending Club

LendingClub is probably the best of the options I've seen if you are comfortable with handling everything related to your account online. It's about as close to what the legacy banking system offers, but with online banking pricing fees. Unfortunately, you don't have a bank branch near you, but the costs are far less than most legacy banks.

Novo

Novo is an online bank with no monthly fee, no minimum balances, seamless integration to all the major sales platforms, and $5,000 in discounts for small business owners to use with other apps like Google Ads, Gusto, and Snapchat. No physical locations for cash deposits.

BlueVine

BlueVine is another great candidate for online banking with a .6% interest rate on accounts under $100K, and easy lines of credit as long as you have six months in business, $10K/month revenue, and a 600 or higher credit score.

Your local credit union

You should bank with your local credit union if you have to pay a bank $10-$35 per month and haves:

• Additional fees every time you deposit more than $10,000 per month
• Additional fees if you have more than 50-350 transactions per month
• 0% interest earned on checking accounts
• 0.01% interest earned on funds in savings accounts

At least going with a local credit union keeps the profit in your hometown or state. With the major banks, the profit is going straight to the CEO, Berkshire Hathaway, and Blackrock Inc.

Big Banks

I'm required to mention Business Advantage from Bank of America for SEO purposes because it is the best of the worst business account offerings. You have to keep $5,000 in the account at all times or pay $16 a month. You can also earn up to $.04% on $250,000 over the course of a year. That's $100 interest for letting them loan the money to other people. Super awesome! Seriously though. Stay away from the big banks.

Crypto.com

 I can make $100 in interest on $1,666.67 in a year. On $250,000, I can make $25K interest. They have debit cards and payment processors too.  Use an online bank for checking accounts and crypto.com Flexible USDC or USDT accounts for savings. They pay up to 14% depending on how much you hold in their coin CRO and how long you lock it up. They offer flexible, 1-month, and 3-month terms.   You'll make way more money off the money you leave sitting around.

Conclusion

Honestly, I'm torn between wanting the service that can only be given with in-person interactions and the far better value of online financial companies. If you are too, I suggest you remember that the legal responsibility of a company is to make its owners money and go with an online bank. This article has explained how to open a small business bank account, the types of accounts available, and some of the better options available. Where did you decide to get your bank account, and are there any we should feature when we update this post?

How would you like to start a business off with lots of high quality recommendations? When you get a cleaning certificate, you’re doing exactly that—and you build a good rapport for your business early. A cleaning certificate is a great way to show customers that you are a professional cleaning company. They also give you access to marketing tools and other benefits that will help your cleaning company. In addition, they provide links to your website from industry experts. You can’t beat that! We’ll discuss the benefits of cleaning certificates, the process of getting a cleaning certificate, and the different organizations that offer cleaning certificates. We’ll share more than 45 cleaning certifications that you can choose to develop skills and increase your brand value.

Should I Get a Cleaning Certificate?

If you are in the cleaning industry or thinking about starting a cleaning business, you might want to become a certified cleaner. Completing a course and test can help you because: [su_note note_color="#dbeafc"]

1. You’ll save money by reducing the amount of wasted and damaged supplies. 
2. Proper safety training will reduce on-the-job injuries.
3. You’ll learn more efficient ways to clean.
4. Each certification communicates that you adhere to industry best practices.
5. Most certifications come with brand assets you can use in marketing. 
6. As a member of the certifying organization, you will receive a high-quality backlink to your website. Most top-performing cleaning companies have hundreds or thousands of backlinks. The ones you can get fairly easily are worth getting.
7. People pay more for better quality.

[/su_note] All of these combine to give you a competitive advantage. You’ll be able to use your industry knowledge, safety training, and marketing tools in a way that you can compete even if you do not offer the most affordable price. Next, let’s look at the process of choosing a certification.

How to Get Cleaning Certifications

Cleaning industry organizations expect you to complete specific steps before receiving a cleaning certificate. The certification process follows these steps:

1. Compare cleaning certifications to verify you meet the requirements.
2. Become a member of the industry group.
3. Take certification course(s) or independently study for the certification exam.
4. Take the certification exam.
5. Become a certified cleaning professional.
6. Take continuing education courses to maintain your certification.

There will be some differences in how each company handles these steps. We’ll look at each step, so you know what to consider.

Compare cleaning industry certifications

You’ll want to compare cleaning certifications based on the following factors: [su_note note_color="#dbeafc"]

1. What is the reputation of the organization?
2. Is the certificate and training relevant to your cleaning business?
3. How much experience or education does the certificate require?
4. Does the certification require you to take a specific cleaning certification class or can you study independently?
5. Will the course be a specific length or at your own pace?
6. Is the exam timed or at your own pace?
7. What is a passing score? Most exams are 70%, but some are as high as 85%, while others are compared to other test takers.
8. Can you get the cleaning certification online or do you have to take a proctored exam?
9. Do you have to be a member to take the exam? Is there a discount for joining?

[/su_note] We’ll answer most of these questions when discussing the best cleaning certification programs. Next, we’ll discuss becoming a member of the industry group.

Should I join cleaning organizations?

Yes. They can be highly beneficial. Most of them are fairly inexpensive for the basic membership version, and you get benefits like:

• Discounts on software for your cleaning business
• A publicly viewable member profile
• Free online cleaning courses with continuing education credits
• Discounts on certification exams
• Updates on workplace safety and government regulations
• Discounts to annual conferences and in-person housekeeper training
• Free branding materials
• A high-quality backlink to your cleaning business

Most memberships pay for themselves. I strongly suggest you consider investing in them to fast-track your business.

Study for the cleaning exam

Most of the tests will not be so easy that you can pass them without studying. They will either have online classes, in-person classes, or suggested study materials. I suggest you use them. A combination of online and suggested reading normally works best for the cleaning certifications you might pursue.  Some courses like the Occupational Safety and Health Administration Specialist Certificate Program require 68 total course hours. At the same time, other certifications do not have a time requirement before you take the certification test. Next, it’s time to take the cleaning test.

Take the certification test

To get a certificate in cleaning you will always have to pass a test. The tests are normally timed, multiple-choice, and require a score of 70+ to pass. Depending on whether the cleaning classes and the exam are packed together, you may be able to take the exam at home or in the same classroom where you took the classes. You’ll need to schedule the cleaning test and pay the certification testing fee if they are not packaged together.

Now you are certified

  Assuming you passed the cleaning business certification test, you will receive your certificate. The company will either provide an online certificate or mail the cleaner certificate to you. There’s one more thing, though.

Continuing education credits

Some certifications will require you to submit proof of completion of cleaning certificate courses each year to remain certified cleaners. This is where the memberships pay for themselves. Each course is normally $50+, while memberships usually cost less than the total of all the continuing education.

Organizations Offering Cleaning Certifications

Cleaning services can cover a broad spectrum of skills. What certifications you’ll want or need will vary based on your own cleaning business. The primary organizations that offer certifications for cleaners are: [su_note note_color="#dbeafc"]

• International Janitorial Cleaning Services Association (IJCSA)
• Occupational Safety & Health Administration (OSHA)
• International Sanitary Supply Association (ISSA)
• Institute of Inspection, Cleaning, and Restoration Certification (IICRC)

[/su_note]

Free Cleaning Certificate Courses Online from IJCSA

If you are looking for a janitorial certification, consider becoming a certified janitor through the IJCSA. It’s one of the least expensive ways to get a commercial cleaning certification. In fact, you can get all 12 certification course offerings for the cost of the membership. That’s less than $20 per certification course. The IJCSA requires a membership which you can get for around $250. If you are a cleaning business owner, I would suggest taking this approach to get the Master Certification for yourself and your management staff. Then have employees take the ones they specifically need including:

• Customer Service Certification: Softskills are critical to business success. Learn about customer-focused business practices.
• Chemical Hazards Certification: Learn how to read MSDS sheets.
• Bloodborne Pathogen Certification: This one is required for all businesses and employees before they start.
• Residential Cleaning Specialist: Focus on industry best practices for homes.
• Green Cleaning Certification: Learn how to actually comply with green cleaning requirements.

This is the closest you’ll get to free janitorial certification or free cleaning certification from a reputable training company. [su_table responsive="yes" alternate="no" fixed="yes"]

Certification	Study Time	Pace	Test Format	Test Time	Pre-reqs	Cost	Renewal Period	Notes
IJCSA Business Membership	N/A	N/A	N/A	N/A	N/A	Approximately $250 Per Year	Annually	Prereq to take certifications
IJCSA Master Certification (IMC)	20		250 Questions including 110 essay plus oral questions	4	Must pass all other certifications first	Free with IJCSA Membership		Requires all other certifications
IJCSA Residential Cleaning Specialist (RCS)	26	Work at own pace	online	4	(CSC), (CHC), (BPC)	Free with IJCSA Membership	3 years	Overview of house cleaning industry. It requires the customer service, bloodborne pathogens, and chemical hazards certifications
Carpet Cleaning Certification (CCC)	10	Work at own pace	online	2		Free with IJCSA Membership
Bloodborne Certification (BPC)	1	Required by Law Before Working	Online	1	Required by Law Before Working	Free with IJCSA Membership	1 year
IJCSA Janitorial Custodial Certification (JCC)	10	self paced	Online	1		Free with IJCSA Membership
Medical Cleaning Certification (MCC)	40	self paced	Online	3		Free with IJCSA Membership
Biohazard Cleaning Certification (BCC)	40	self paced	Online	4		Free with IJCSA Membership		If you want to clean crime scenes, this is the certification for you! Includes OSHA Hazwopper certification.
Mold Inspection & Remediation Services (MIRS)	80	Set time of 40 hours, but self paced.	Online	2		Free with IJCSA Membership		Able to legally perform mold remediation
Green Cleaning Certification (GCC)	4	self paced	Online	1		Free with IJCSA Membership		Adheres to ISO 9001, ISO 14001 and ISO 31000. May qualify to work on buildings with HACCP Standards Certification, ISO Certification, LEED Certification, and CFGS Certification.
Green Cleaning Masters Certification (GCMC)	15	self paced	150 questions, 75 are essay questions	3	GCC, CHC	Free with IJCSA Membership		Tests for greater comprehension of green cleaning
Chemical Hazards Certification (CHC)	4	self paced		1		Free with IJCSA Membership		Master the mechanics of MSDS sheet.
Customer Service Certification (CSC)	1	self paced	online	0.5		Free with IJCSA Membership		Freshen up your soft skills. Every cleaning company should require employees to go through customer service training at least once a year.
Complete All Courses	231			26.5		Free with IJCSA Membership		Effectively the same as one semester at full-time college. Allows you to work on most cleaning projects.

[/su_table]

Occupational Safety & Health Administration Certification

Occupational Safety & Health Administration (OSHA) offers three safety and health fundamental certifications that professional cleaners may need each employee to complete. The three certifications are for the :

• General industry: Good for working on commercial properties that require OSHA training.
• Construction industry: Needed if you’ll be doing construction cleanup on major construction sites.
• Maritime industry: Good for cleaning companies that will be cleaning or power washing boats.

If you aren’t working on large commercial properties, you might not be required to have these. It doesn’t hurt to have them, though. Let’s look at each.

General Industry Safety & Health Fundamentals Certificate Program 

The Safety & Health Fundamentals for General Industry requires at least 68 hours across seven courses including:

• 39 hours in the following courses:
  • OSHA #511: Occupational Safety & Health Standards for the General Industry (26 hours)
  • OSHA #7500: Introduction to Safety & Health Management (5.5 hours)
  • OSHA #7505: Introduction to Incident (Accident) Investigation  (7.5 hours)
• Minimum of 29 elective hours across four of the courses listed on the general industry certificate webpage. Some that make sense for cleaning industries include:
  • OSHA #7845: Recordkeeping Rule Seminar (4 hours)
  • OSHA #7205: Health Hazard Awareness (6 hours)
  • OSHA #7210: Pandemic Illness Preparedness (5.5 hours)
  • OSHA #2255: Principles of Ergonomics (18 hours)
  • OSHA #7215: Silica in Construction, Maritime, and General Industries (7 hours) Good if taking either of the other OSHA certificates.

Find courses that work for you on the Occupational Training Institute searchable course schedule.

Maritime Safety & Health Fundamentals Certificate Program

If you clean boats or other facilities on the water, you should consider taking the Safety & Health Fundamentals for Maritime certification. It requires a minimum of 77 hours including:

• 48 hours in the following courses:
  • OSHA #5410: Occupational Safety & Health Standards for the Maritime Industry (35 hours)
  • OSHA #7500: Introduction to Safety & Health Management (5.5 hours)
  • OSHA #7505: Introduction to Incident (Accident) Investigation  (7.5 hours)
• Minimum of 29 elective hours across four of the courses listed on the maritime industry certificate webpage. Some that make sense for maritime cleaning companies include:
  • OSHA #3115: Fall Protection (18 hours). Working on the water creates challenges most cleaning companies don’t encounter.
  • OSHA #7215: Silica in Construction, Maritime, and General Industries (7 hours). If you didn’t take this with the general industry certification, you probably should take it now.
  • OSHA #7100: Introduction to Machinery and Machine Safeguarding (4 hours). Workers will probably be working around unique equipment. They should learn equipment safety.
  • OSHA #7115: Lockout and Tagout (7.5 hours). Anyone working around electrical equipment should understand lockout and tagout. It protects against electrocution deaths.

Construction Safety & Health Fundamentals Certificate Program

Construction cleanup companies should consider getting the Safety & Health Fundamentals for Construction certification. It requires a minimum of 68 hours of training including:

• 39 hours in the following courses:
  • OSHA #510: Occupational Safety & Health Standards for the Construction Industry (26 hours)
  • OSHA #7500: Introduction to Safety & Health Management (5.5 hours)
  • OSHA #7505: Introduction to Incident (Accident) Investigation  (7.5 hours)
• Minimum of 29 elective hours across four of the courses listed on the general industry certificate webpage. Some that make sense for cleaning industries include:
  • OSHA #7845: Recordkeeping Rule Seminar (4 hours)
  • OSHA #7205: Health Hazard Awareness (6 hours)
  • OSHA #3085: Principles of Scaffolding (22 hours). You’ll probably have to get on scaffolds to reach places that can’t be reached by a ladder.
  • OSHA #7400: Occupational Noise Exposure (7.5 hours). Construction sites can damage the hearing. Make sure to understand how to protect yourself.

You should be able to get an OSHA cleaning certification online. Unless you are doing construction and maritime cleaning, I would not expect you to need more than one of these OSHA certifications. However, check with each property owner to establish their requirements for subcontractors.

International Sanitary Supply Association

The ISSA has more than 10,500 members grouped into the following categories:

• Associated service members
• Building service contractors
• In-house service providers
• Distributors
• Manufacturers
• Manufacturer representatives
• Residential cleaners

You can get ISSA cleaning certifications and ISSA accreditation for your business through their subsidiaries:

• Cleaning Industry Management Standard (CIMS)
• Cleaning Management Institute (CMI)
• Association of Residential Cleaning Services International (ARCSI)

Commercial Cleaning Business Certificates from CIMS

CIMS is a management standard for how to operate a cleaning business. They have two levels of certifications for a cleaning business:

• CIMS Certification: This cleaning business certification focuses on operations for building service contractors, in-house service providers, and facility managers.
• CIMS Green Building Certification: This cleaning business certification focuses on operations for facility managers, in-house service providers, and building service contractors that will be working on U.S. Green Building Council LEED Projects.

Both cleaning certifications require cleaning services to:

1. Submit an application and a $500 (approximately) non-refundable fee.
2. Create processes for the cleaning business that include written standards and proof of application for:
   1. Quality Control 
   2. Service
   3. Human Resources
   4. Health, Safety, and Environmental Stewardship
   5. Management Commitment
   6. Equipment, Supplies, and Tool Policies
3. Approve the assigned auditor for their cleaning services.
4. Paying additional fees including:
   1. $995 (estimated) certification fee for ISSA members or $1,695 (estimated) for non-members
   2. Assessment fees based on complexity of the commercial cleaning business
   3. Expenses for the cleaning business auditor.
5. Allow a CIMS Certification Expert to evaluate their business in person.

After this process is complete, you will be certified assuming you meet the standards, which you can find here. I would recommend taking the green building certification when you decide to pursue these cleaning certificates because there is no point in paying for the audits twice.

Cleaning Management Institute (CMI)

The Cleaning Management Institute offers numerous certifications for cleaning companies to prove their knowledge, but the most popular cleaning certification program is the Certified Custodial Technician. This certificate program has three levels of certification for the industry today. Here is an outline of the program:

1. Basic version: Pay course fee (about $315), take the course, and score 80% or better on the exam. Learn more about the janitor certification.
2. Advanced Clean Certification: Pass the basics course, pay another $315 (estimated), take a course on advanced techniques, and score 80% or higher to pass the CPI Custodial Advanced certification.
3. CMI Custodial Expert: This 20 hour in-person ISSA cleaning certification requires completing the basic and advanced cleaning certificate online before you can participate in the program and become a certified janitorial expert. Find locations to take the cleaning course and advance your career.

You can also check out the free materials included in ISSA CMI Cleaning Professional 101.

How to Become a Certified House Cleaner with ARCSI Cleaning Business Certifications

ARCSI is the residential cleaning arm of the ISSA and offers two cleaning certifications:

1. ARCSI Professional House Cleaning certification (PHC): An eight-hour online certificate that covers the knowledge you need to clean homes. You can get a single online certificate or unlimited certifications for growing businesses. Take the PHC course on ISSA Learning Portal. Get more details about the residential cleaning certification. 
2. IICRC/ARCSI House Cleaning Technician Certification (HCT): The house cleaning technician training & certification is actually an IICRC certification, but the only available courses are from ARCSI. It claims to be both online and in-person, but the online course is not available at the time of writing. (The online certification course will become available in 2023). The course is $275 for IICRC and ARCSI members or $575 for non-members. There is also an $80 exam fee. Additional certifications are only $200 regardless of your member status. 
   1. If you only get one exam, this would be a good one to choose because you’ll be listed on two major players' websites if you become a member of each.

Institute of Inspection, Cleaning, and Restoration Certification (IICRC)

The IICRC mostly focuses on certifying inspection, cleaning, and restoring floors, carpet cleaning jobs, and other surfaces. They offer a house cleaning technician certification, which we discussed earlier, but some of their most noteworthy certificate of cleaning programs include the Master Designations. There are three master tracks including: [su_note note_color="#dbeafc"]

1. Master Textile Cleaner (MTC)
2. Master Fire and Smoke Restorer (MSR)
3. Master Water Restorer (MWR)

[/su_note] Each of these programs shows an in-depth understanding of the techniques used for specialty cleaning jobs. They are sure to advance your career and help you make more money by offering better services and techniques than other successful cleaning businesses. Let’s look at how to become a master textile cleaner first.

How to become a Master Textile Cleaner

To become an IICRC Master Textile Cleaner requires five certifications plus three years as a certified cleaner. The IICRC requires the following five steps to achieve the Master Textile Cleaner (MTC) designation:

1. Pass three certification tests:
   1. Carpet Cleaning Technician (CCT) or Commercial Carpet Maintenance Technician (CCMT): The CCT is focused on application of cleaning skills for carpeted floors and other surfaces, while the CCMT is focused on the management of floor cleaning.
   2. Upholstery and Fabric Cleaning Technician (UFT): This certification is focused on understanding fabric and cleaning challenges related to different methods and chemicals.
   3. Odor Control Technician (OCT), Carpet Repair and Reinstallation Technician (RRT), or Color Repair Technician (CRT): Choose one of the three. The OCT is also required for the MSR, while the RRT is required for the MWR. If you live in an area prone to floods, you might want to do the RRT first.
2. After 12 months of IICRC certification, you obtain Journeyman Textile Cleaner (JTC) status.
3. Complete the other two certifications from Step 1c.
4. Complete three years of IICRC Certification.
5. Become a Master Textile Cleaner (MTC).

Each certification runs about $80, so it will cost approximately $400 plus annual renewal fees and continuing education credit costs.

How to become a Master Water Restorer 

To become an IICRC Master Water Restorer requires five certifications plus three years as a certified cleaner. The IICRC requires the following five steps to achieve the Master Fire and Smoke Restorer (MSR) designation:

1. Pass three certification tests:
   1. Carpet Cleaning Technician (CCT) or Commercial Carpet Maintenance Technician (CCMT): The CCT is focused on the application of cleaning skills for carpeted floors and other surfaces, while the CCMT is focused on the management of floor cleaning.
   2. Water Damage Restoration Technician (WRT): The WRT focuses on understanding the processes to repair property after water damage. 
   3. Carpet Repair and Reinstallation Technician (RRT): The RRT teaches you how to remove and reattach carpet using industry best practices.
2. After 12 months of IICRC certification, you obtain Journeyman Water Restorer (JWR) status.
3. Complete the following certifications:
   1. Health and Safety Technician (HST): The HST is focused on hazard risk assessment and prevention while operating your own cleaning business.
   2. Applied Microbial Remediation Technician (AMRT): The AMRT is focused on the mold and sewage remediation techniques and how to perform them while preventing potential health risks.
   3. Applied Structural Drying Technician (ASD): The ASD focuses on the techniques for cleaning and drying customers’ property after water damage. Also focuses on proper health safety for your workers while cleaning the client’s home or office.
4. Complete three years of IICRC Certification.
5. Become a Master Water Restorer (MWR).

Each certification runs about $80, so it will cost approximately $400 plus annual renewal fees and continuing education credit costs.

How to become a Master Fire and Smoke Restorer 

To become an IICRC Master Fire and Smoke Restorer requires five certifications plus three years as a certified cleaner. The IICRC requires the following five steps to achieve the Master Fire and Smoke Restorer (MSR) designation:

1. Pass three certification tests:
   1. Fire and Smoke Damage Restoration Technician (FSRT): The FSRT is focused on scoping, mitigating, cleaning, and documenting residential and commercial fire cleanup.
   2. Upholstery and Fabric Cleaning Technician (UFT): This certification is focused on understanding fabric and cleaning challenges related to different methods and chemicals.
   3. Odor Control Technician (OCT): The OCT teaches you to remove odors from mold, smoke, chemicals, and urine.
2. After 12 months of IICRC certification you obtain Journeyman Fire and Smoke Restorer (JSR) status.
3. Complete the following certifications:
   1. Health and Safety Technician (HST): The HST is focused on hazard risk assessment and prevention while operating your own cleaning business.
   2. Carpet Cleaning Technician (CCT) or Commercial Carpet Maintenance Technician (CCMT): The CCT is focused on application of cleaning skills for carpeted floors and other surfaces, while the CCMT is focused on the management of floor cleaning.
4. Complete three years of IICRC Certification.
5. Become a Master Fire and Smoke Restorer (MSR).

Each certification runs about $80, so it will cost approximately $400 plus annual renewal fees and continuing education credit costs.

Building Service Contractors Association International (BSCAI)

The BSCAI creates four courses that help people prove their knowledge of the cleaning, safety, and management of buildings. If you perform work for government agencies or large business complexes, you might benefit from these certifications. The two most commonly recommended are:

• Registered Building Service Manager (RBSM): At about $275, this course is a great way to familiarize yourself with OSHA safety, employee management, floor care, and more.
• Certified Building Service Executive (CBSE): With a cost of about $50, this course is a good one to help build a more successful cleaning business. It includes business law, industry considerations, inventory, employee management, quality control, taxes, and more.

Sanitation Cleaning Certification

If you specifically need sanitation certification, consider the following courses and certificates:

• IJCSA Medical Cleaning Certification: Covers bloodborne pathogens, chemical hazards, covid, PPE and more as it relates to cleaning companies. Learn more.
• Certified Health Care Environmental Services Professional (CHESP): The Association for the Health Care Environment offers this certification. 

Specialized Cleaning Certification Organizations

• Portable Sanitation Association International (PSAI): Certifications for sanitizing porta potties.
• North American Power Sweeping Association (NAPSA): Certifications for street cleaning.
• Pool and Hottub Alliance (PHTA): Pool cleaning certifications
• National Association of Sewer Service Companies (NASSCO): Certifications for sewage and pipeline cleaning.
• United Association of Mobile Contract Cleaners (UAMCC): Power washing certifications

Which Certification Will Help Your Own Cleaning Business?

The goal of this blog is to provide you with as many cleaning certification options as possible. Each cleaning business will need to consider how each certification fits within your own business. What cleaning certifications would help your business most?

Do you want to make sure you get top dollar for a business you’re trying to sell? Then you need to know how to value a business. Or, are you considering buying a business, and need to know EXACTLY what it’s worth, so you pay that price for it and not a penny more? If so, you’ve come to the right place. In this article, I'll make sure you're armed with every bit of knowledge you'll need. That way, you'll be able to determine how to value a business like a pro. My highly actionable advice could end up saving you THOUSANDS of dollars of your hard-earned money in business valuation. There are SO many questions to ask when you’re trying to find the value of your business. That’s true whether it’s one you already own, or, one you’re considering buying. Here are a few questions about business valuation that might be swimming around in your head: How the heck do I value a business anyway? How much is MY business worth? What’s the exact process for valuing a business? I’ve heard there’s more than one method. Which one do I use? Now, getting answers to these questions won’t be as easy as ordering an Iced Caramel Cloud Macchiato from the Starbucks drive-thru. But it isn’t rocket science either.

The Challenges of Valuing a Business

Let's get into the specifics of how to value a business you own or a business you're thinking about buying. But before we do, it might be a TERRIFIC idea to go over how you determine the value of ANYTHING. To do that, I’ll have to dust off my copy of Economics 101. There’s going to be disagreement between buyers and business owners as far as price and business valuation goes. Buyers want a low one, while business owners want a high one. So, a compromise is inevitable. The more demand there is for a business, the higher the price will be. The price for anything is determined by a Supply and Demand Curve. Look at this one: You arrive at the optimal market price for an item based on supply and demand by figuring out the precise point at which supply equals demand. To do that, you’ll need to create a graph with the supply and demand lines written on it. Where these two lines intersect is what is called “economic equilibrium,” or the market price for the good or service. Of course, the real value of a good or service is the price a buyer is willing to pay and one that the seller is willing to accept. For example, suppose we have a can of sweet peas. Let’s say it costs a company 75 cents to manufacture a can of peas. This cost includes things like:

• Harvesting
• Drying (that’s because they weigh less, so they can more shipped more cheaply)
• Shipping to the processing plant
• Reconstituting them by adding water
• Adding green dye (SURPRISINGLY ENOUGH!)
• Putting them into cans

However, no matter what price he slaps on the can, it will only sell if he can find a buyer willing to pay that price. The buyer could care less about the costs of getting that can to the shelf so he can buy it. He'll only plunk his hard-earned money down for the peas if he thinks they’re worth it.

What Else You Should Know

This example powerfully illustrates the one thing that’s too often overlooked when pricing a good or service. And that is, value is often (to use an ancient cliché that also happens to be one of the very best “Twilight Zone” episodes ever made), “in the eye of the beholder.” There must be on the part of the buyer to buy the thing. That's because a desire is the gasoline that fuels the economic engine that runs the world. This desire can either be based on needs. Or, it can be based on wants.

A Tale of Two Cars

Increasingly in today’s world, more consumers are prioritizing wants over needs. Here’s an example. All cars basically do the same thing—get you from Point “A” to Point “B.” That’s it. A simple function. Even though both cars basically do the same thing, there’s a HUGE difference between the price of a Ford Fiesta and a McClaren P1. As a matter of fact, about $1,334,740. Most buyers would consider the P1 to be sexier than the Ford Fusion. In fact, probably about a million times more so. This desire jacks up the price of the car. The ONLY way anything has value in the marketplace is if a buyer is willing to buy it. And, at the price that the seller wants. The importance of “want” when it comes to determining value cannot be emphasized enough.

The Power of Emotional Attachment

Real estate is an excellent way to demonstrate this concept. Some of the priciest real estate you could get your hands on happens to be in New York City and San Francisco. Here are real estate prices in New York: And here’s what they look like for San Francisco: However, there’s a certain segment of the population who would not live in either of those two cities. No matter how low the price happened to be. And even if you paid them to live there. The same is true for sellers. I recently watched an episode of “Better Call Saul.” In it, Everett Acker (played by the great Barry Corbin), refuses to sell his house to Mesa Verde Bank and Trust. They want his piece of land so they can put a call center on it. First, they offer him market price for the home. And an additional $18,000. Then, they increase their offer to market value PLUS $45,000. But no matter how high the offer goes, Acker won’t budge. That’s because he’s lived there since the 70s. And, he’s emotionally invested in his home. So, because the price is subjective, it can be difficult to determine the price. People get attached to things, which tends to skew their perception of the thing's actual value.

I’d Buy THAT for a Dollar

In the real world, we know that people can be enticed into buying something because the price is simply too good to pass up. For example, with a significant portion of the population, if you offered to sell them a West Village (a fashionable neighborhood in New York City known for its beautiful architecture and chic, artistic offerings) mega-mansion for the unbelievably low price of $1.00, there would be almost no one who would refuse you. So, price is a powerful motivator. There’s no denying that fact. Even if they don’t really want the item, there are few who can pass up a good deal when they see it. Most people know “great value” when they see it. Nobody needs to tell them! Whether you’re buying a house or a can of peas, the active market determines price. If people think an item’s price is too high, they’ll flock to a lower-priced alternative. Over time, this causes the price of goods to fluctuate until it achieves economic equilibrium.

How Negotiating Affects Price

However, buying a house is much different than driving down to your local Kroger’s to buy a can of peas. It cost thousands of times more, so there’s a lot more risk involved. You’re not going to haggle on the price for the can of peas. Everybody who buys a can of peas at the same store will pay the same price for that can. However, negotiating the price of a home is not only allowed—it's expected. Because of negotiation, there’s going to be more variation in the price of a house than the price of a can of peas. Now, you can easily find the average price of a home in a geographical region by checking out tax assessor websites for listings of recently sold homes. Or, call a real estate agent and ask for a list of recently sold properties in the neighborhood you’re looking at. You could even use a website like this: For example, if 20 houses sell during the same month and they’re comparable, then a quick calculation will tell you the average price for a home in that neighborhood. Now, this is all well and good when the market is active. Inactive markets are another story. This is where there are either no sales or no comparable sales.

When Comparisons Become Meaningless

If these 20 homes sold over five years instead of a more limited period, there would be no way to compare one sale with another. That’s because the sales were spaced out over a long time, and comparison becomes meaningless. The same issue pops up with business sales. The problem is even worse because there are far fewer sales of a business in a location than home sales. And because of this, looking at comparable sales to determine value when thinking about buying a small business is less useful. However, because realtors are used to comparing properties when determining value, they continue to use this same method when trying to figure out how much a business is worth. The real problem with this is that there’s no practical way to compare one company with another. A hair salon is a whole LOT more different than a machine part manufacturer. Even if you compare one kind of restaurant with another, there are still a lot of differences between the two.

A Tale of Two Cafés

For example, in the area where I live, there are two vegan cafés. Now, you might think that since both are vegan, that you can easily compare one to another when you’re trying to figure out what the price of a vegan café is in the area. But you’d be wrong. That’s because one café took over space formerly occupied by a late-night dive restaurant. You know the kind of place: The kind you go to in the middle of the night after having one too many Long Island Iced Teas at your favorite bar. The vegan café retains a bit of this grungy charm. It's located in a somewhat rough part of town, right next door to a minor league baseball park. The second café occupies space that used to be a street-front slaughterhouse and restaurant specializing in buffalo meat (which is a funny place for a vegan diner to occupy). It’s ten times ritzier than the first joint. And, it’s located in an upscale part of the city, right next to several colleges. Here’s what its website looks like: Now, even though the two cafés are vegan establishments, saying that their value is going to be comparable is a silly exercise in futility. SO, DON’T EVEN TRY IT, MISTER!

The Goodwill Factor

Finally, you’ll need to consider "goodwill" when trying to figure out how much a business is worth. Goodwill is the intangible assets of a company. Assets of the tangible variety are easier to understand. For example, let’s consider a manufacturer that makes phone cases that uses plastic to build her cases. The value of this raw material is wicked easy to figure out. However, suppose that this maker has a highly secret, super-efficient, patented process for making these cases. Trying to ascertain the monetary value of this technological trade secret is going to be challenging to determine. Yet, this process is a significant asset of the company because it supercharges its competitive advantage. Intangible assets are often overlooked when someone is conducting a valuation. That’s because they’re:

• THOUGHTS
• IDEAS
• CONCEPTS
• EXPERIENCES

And other things that might seem nebulous and indefinable, but which rake profit in for the company. How the heck can you slap a dollar amount on items like this? It’s well near impossible—even for professional consultants who have been doing this kind of thing for decades.

B.Y.O.A. (Bring Your Own Assets)

Sometimes, a potential buyer of a small business isn’t acquiring an intangible asset. Instead, they’re contributing an asset to the company they're buying. For example, say you purchase a company because you absolutely adore their product. However, you’re not so crazy about their production facility.  That's because it's seen better days and doesn't have all the technological bells and whistles that your own facility has. These are processes you spent years developing. And without all the high-tech wizardry you perfected over the years on your own products, there’s no way you’ll be able to competitively price the good. So, you start making the gadgets at your own factory. You just made the value of the small business you bought skyrocket into the stratosphere because of the intangible assets you added to it. These examples illustrate why there are so many challenges in determining the value of a small business. Next, we’ll look at formulas you can use to help figure out how much a company is worth. However, keep in mind that each one will only give you a rough idea because of all the subjective factors we just talked about.

Business Valuation Formulas

There are several methods for determining the value of a business. Here’s are some of them:

Asset-Based Method

One of the easiest ways to for business valuation is something called the asset-based method. As you might guess from the name, what you do is add up all the business assets. Although they’re going to be mostly tangible assets, there might be a few intangible assets you’ll have to take into consideration. Here’s how it’s actually done: After you list all the assets, you’ll next have to list all the liabilities. These are things like debts and accounts payable. Then to come up with a ballpark figure for the value, subtract the liabilities from the assets. Here’s an example. [su_note] A company has the following assets:

• $20,000 CASH
• $130,000 BUILDING
• $25,000 FLEET VEHICLES
• $25,000 INVENTORY AND MACHINERY

Total assets are $200,000. Now, let’s list their liabilities. These are:

• $85,000 MORTGAGE
• $17,000 WORKING CAPITAL LOAN
• $40,000 ACCOUNTS PAYABLE

[/su_note] The company would have a total asset base of $200,000. Total liabilities would be $142,000. Thus, the company would have a value of $58,000. Of course, these numbers are a snapshot of a specific moment in time. The only problem with that is that business valuation is always fluctuating. For example, what if the day after this snapshot was taken, the company was lucky enough to snag a much-coveted account. And, this brand spanking new client paid a hefty retainer fee. Admittedly, this sudden influx of both new business and cash will increase the value of the company. Almost every day, something could happen that could either increase or decrease the value of the business. So, it’s hard to keep track of a company’s ever-changing value when asset-based valuation is all you use. That’s why most experts recommend using it only as a starting point. Revenue Model Valuation Method Next is the revenue model business valuation method. This method is comprised of several different approaches, all lumped in together because they determine the value of a business based on its income. What’s great about this strategy is that it reflects actual business operations. What could be a better metric of the value of a business than that? It’s easy to see why this might be a better method to figure out how much a small business is worth than the asset-based approach. And really (when you come right down to it) this is simply a valuation based on the sales of a company. So how does this system work? Well, the details are where the weaknesses of this methodology can be seen. Let’s look at an example: Say a hair salon has been open for 20 years. Their yearly revenue currently happens to be $250,000. The owner makes a profit of about $75,000. A formula solely based on sales would take the $250,000 and say this is the business's value. However, these figures deserve a little more scrutiny. Let’s say the $250,000 is the smallest gross revenue the company has earned in its two decades of existence. This means that cash inflows are declining over time. Is that an excellent value to place on the small business? It probably isn’t, if revenues are going to continue to drop each year. That’s why a revenue model valuation (although it has certain advantages over asset-based valuation) might not tell the whole story.

How Accurate is Revenue Model Business Valuation?

So, I just pointed out several flaws in the revenue model of small business valuation. There are so many variables that can affect a company’s revenue stream. For this method to be accurate, you must account for them all somehow. Here’s another variable: there could be stylists who are rock stars. However, they’ve only been with the salon for a year or two. During that time, sales skyrocket because of their extraordinary ability to give everyone exactly the hairstyle they always dreamed of. But now they’re gone. The salon is left with beauticians of a more average sort. Because of this, the revenues of the business drop precipitously. Or, let’s pretend that the business sells machines that do emission testing. In this scenario, several states drastically increased their emission standards. This has the effect of rendering the old devices obsolete. When this happens, automotive repair shops that issue inspection stickers are all scrambling to get their hands on the new machines. This sends the revenues of the company making the machine through the roof. But the next year, sales level off, because all automotive places that issue inspection stickers already have the newer models. As you can see, the revenue-based valuation method's major problem is that it’s only a snapshot of the company at a moment in time.

Discounted Cash Flow

So, that’s two ways to determine small business valuation. Is there another? Turns out there is. But before we go over these other methods including discounted cash flow, let’s look at one of the most prominent investors in the world. You’ve probably heard of him. Warren Buffet. His company, Berkshire Hathaway, has built a HUMONGOUS empire of businesses all over the planet. They include: Mr. Buffet acquired a controlling interest of more than 10% in every one of these companies because he’s a buyout artist par excellence. He wouldn’t have added these companies unless, over the years, he honed his ability to determine value to a razor-sharp point. Here’s the point in the festivities you might be asking: NOW, WHAT THE HECK VALUATION METHOD DOES WARREN USE? Good question. The answer is discounted cash flow analysis. This is a more accurate method than the other two methods we discussed. That’s because cash flow doesn’t use a mere moment in time—it uses a more extended period. Which is usually several years. Most non-discounted methods for determining value are based on financial history. However, you’re not purchasing a book talking about the company’s past achievements. You’re buying their financial performance because you want to benefit from their future cash flow. Now, you might be thinking that past financial success is a good predictor of future economic success. But just like admen in slick financial product infomercials will tell you, you’d be wrong. And that’s because the future is fraught with uncertainty, my friends! When you use the cash flow method, you’ll be comparing the rate of return you'd get on this company to the rate of return for U.S. Treasury bills. To do this, use the formula for the Net Present Value of Money. In this formula, cash flow is the money flowing in and out of the company. R is the discount rate. This can be a percentage. For example, the current interest rate. Alternatively, you can use the weighted average cost of capital for your percentage. This is the rate a company pays to finance its assets. It includes the average cost of a company’s working capital after taxes. N is the time period. You can use however long you want for this amount, whether that’s 5, 10, or 30 years. The number you get after you input all values into the formula is called the terminal value. This represents the growth rate for projected cash flows for years other than the time parameters you’re using. To figure out this value, take the cash flow of the final year. Then, multiply it by (1+long term growth rate in decimal form) and divide it by the discount rate minus the long-term growth rate in decimal form. Say you want to do a discounted cash flow analysis of a business you’re considering buying. First, estimate its future cash flow. To do this, look at the balance sheet for the previous year. This is the amount of revenue that flowed in and out of the business. Let’s say this figure was $750,000 in 2019. Now, you can look at the number for 2018. Say this number is $700,000. Now, we’ll have to calculate the rate of growth. To do that, use this formula. Plugging in the numbers from our example, this would be: GROWTH RATE = $750,000-$700,000/$700,000 = 7.14%. Use this to estimate the future growth rate. Using this number, we extrapolate that our company will grow by this amount for the first two years. And then, in the next two years, we take all factors into consideration and estimate that growth will slow to 6%. You also need to choose a percentage to calculate the terminal value. This number represents the long-term growth of the company. Err on the side of caution with this, so your estimate isn’t overly optimistic. A good guideline is to use current interest rates for this amount. Let’s say it’s 4%. With these figures, you can now calculate the projected cash flow for each year in your timeframe. Lastly, we need to figure out the weighted average cost of capital. Here’s the formula. Let’s say the discount rate for our company is 4%. Now, let’s plug our numbers into the first formula to get the discounted cash flow for the small business: [su_note note_color="#d2dde7"] ($803,550 / 1.04¹) + ($860,923.47 / 1.04²) + ($912,578.88 /1.04³) + ($967,333.61 / 1.04⁴) + ($1,006,026.95 / 1.04⁵) = $772,644.23 + $827,811.03 + $877,479.70 + $930,128.48 + $967,333.61 BUSINESS DISCOUNTED CASH FLOW = $4,375,397.05 [/su_note] So, this is the value of the company using the Discounted Cash Flow Method.

Come Up with A Range of Values

The best way to come up with an accurate valuation is to use all these methods to come up with a range of values. Combining the asset-based approach with the revenue model valuation method and discounted cash flow will help you get a clearer picture of the business's actual value. As an example, let’s presume there is a restaurant getting ready to be placed on the market. The company has been averaging $200,000 in revenues for the last 10 years. In the previous three years, the owner has not been as involved in the company. So, the earnings are below average. The assets of the company are as follows: [su_note note_color="#d2dde7"]

• BUILDING $250,000
• EQUIPMENT $15,000
• FIXTURES $10,000
• CASH $25,000

The debts are:

• $10,000 MORTGAGE
• WORKING CAPITAL LOAN OF $25,000

In the most recent year of revenue, the company earned $95,000. From the revenue model, the value is $95,000. From the asset-based method, the value is $300,000. From the discount cash flow method, the value is $448,622. [/su_note] The range method then would say that the value of the company would be somewhere between $95,000 and $448,622. The owner and buyer could add in other factors to adjust this range, like their opinion of the small business.

Conclusion

What is the bottom-line in finding a value to a small business? The best answer is that it is complicated. First, value is often in the eye of the beholder. So, value can be subjective, based on personal opinions. Second, there are multiple methods for determining value—whether that’s the asset-based, revenue model, or discounted cash flow method. Each has merit, but each has its faults. This means that there is no perfect method for determining the value of a business. That‘s why the best solution is to use a range of value to place you in the “ballpark” for what a small business is worth. This range provides for more accuracy in assigning value. I hope this article has instilled you with the confidence to make excellent business valuations.