Have you ever considered selling your business? Do you know how much is your business worth?
In general, no fixed rules or formulas apply to value how much your business is worth. People may attempt to tag a price for your business. The power to evaluate your business should be solely on you, the owner.
However, having said that this does not mean you can value it as you like. In order to put a value on a business, you should take a few aspects into consideration.
This article will explore those aspects one by one:
How Much Profit Can Your Business Make?
Every business should have projected profits and cash flow and a report on how overheads and other costs were managed in the past. The projection and report can be used to consider expenditure that has been planned for or will be needed in the future.
Future profitability is of the utmost importance. The more profitable your business is projected to be, the more interest will people be to buy it.
Assets and Liabilities
Add up all your assets and minus it off with the liabilities and you are left with the asset valuation. The net asset value of your company is the total market value of all the assets it holds, such as equipment, machinery, computers, cars and properties; subtracting the value of any liabilities, such as debts, leases, finance or other money or equipment owed.
Applying asset valuation is generally more realistic if your company has a large amount of assets and/or its long term revenue generating capabilities are limited. There is a need to consider the current situation with orders and the value of any property and equipment.
What is the situation with debtors?
Does the business own any patents?
All these needs to carefully consider when fixing the closing price for the business. You must ensure that everything is accounted for.
It is not something quantifiable or tangible, but its presence makes a difference, good or bad. This could sometimes be one of the major aspects when valuing a business.
Due to it being intangible, it needs more attention. The strength of the customer base of a business for instance is something to consider.
How loyal are your customers?
Do you have a loyalty program?
If yes, how many are subscribed to it and how are you planning to transition them?
This can be a very valuable aspect as a sound customer base can provide opportunities for future buyers to use them as a target audience.
Are your management members going to stay with the business once you sell it or are they planning to leave with you. Depending on their decision and what the buyer prefers, the value of the business will increase or decrease significantly.
The organization structure is also important. The buyer will want to see if he can make do without some employees and having that choice will help him decide.
“Obviously, if you are selling your business, valuation is extremely important”
The above were all internal factors, but the current state of economy and the projection of the state of the industry your business is in is also important external factors. Depending on the individual business, there could be many other factors that can be considered to get you the most accurate valuation but this depends on the industry you operate in and the type of business you run.
It is important to first do a personal valuation and then do a valuation together with a potential buyer taking into account their demands and preferences.
Obviously, if you are selling your business, valuation is extremely important. However, valuation can also and should be used as a powerful driver of how you manage your business. Valuation helps you track the effectiveness of your strategic decision-making process and to provide you with the ability to track performance in terms of estimated change in value, not just in revenue.
This helps you to take a holistic look at your business and make decisions that are highly impactful for your bottom line. It allows you to understand the subtle dynamics of your business and avoid unforeseen consequences of seemingly reasonable decisions. A value-based management approach will set you apart from your competition and dramatically change the way you and the market view your company.