How much is my Business Worth?
A common question asked by business owners is how much is my business worth?
Although this may seem simple, determining how much a business is worth can be challenging.
This is because there are two perspectives on matter, yours and the buyers and these are often far apart.
So, how do you value you a business?
Well first you will need to take an unbiased perspective on the matter which may involve consulting a 3rd party.
Whether you’re looking to sell or simply interested in the value of your business. This guide will give you answers you need to for valuing a business.
Business Valuation Methods
There are number of approaches to valuing a business. Here we will cover the various business valuations methods used.
Market value:
Income:
Asset:
Understanding these methods should give you an understanding of how to value a business for sale.
Where these can go wrong:
Simple choosing a method that is easiest – these will need to be matched to your type of business.
These valuation methods should only be used as an indication of your business value.
You should always seek advice from a professional to ensure that you are accurately pricing your business for sale.
Criteria for valuing a business
Motivation for selling
Your reason for selling will have affects on the business value.
If you have listed your business because of fatigue, sickness, retirement or a drop it profits then you should expect to see a lower price.
These are known as a ‘forced sale’ and will drastically affect the business value and ability of the broker to negotiate a sale price.
Tangibility of your assets
Tangible assets are easier to value as they hold resale value to your buyer. This commonly includes property, machinery and stock on hand.
Intangible assets including your brand reputation, customer loyalty, intellectual properly and ability to diversify are hard to value.
Business age, customer & supplier relationships
If your business has been in operation for some time, this presents a better track record for potential buyers.
Additionally this will allow you to exhibit a history of cash flow and a loyal customer base.
Stability of management and key staff
Locking in a strong management team puts piece at mind for the new owners.
If the success if the business relies on your or key personnel then this may affect the business value.
Criteria for valuing a business
Motivation for selling
Your reason for selling will have affects on the business value.
If you have listed your business because of fatigue, sickness, retirement or a drop it profits then you should expect to see a lower price.
These are known as a ‘forced sale’ and will drastically affect the business value and ability of the broker to negotiate a sale price.
Tangibility of your assets
Tangible assets are easier to value as they hold resale value to your buyer. This commonly includes property, machinery and stock on hand.
Intangible assets including your brand reputation, customer loyalty, intellectual properly and ability to diversify are hard to value.
Business age, customer & supplier relationships
If your business has been in operation for some time, this presents a better track record for potential buyers.
Additionally this will allow you to exhibit a history of cash flow and a loyal customer base.
Stability of management and key staff
Locking in a strong management team puts piece at mind for the new owners.
If the success if the business relies on your or key personnel then this may affect the business value.
Business Valuation Services
There are several professional services who may perform a business valuation. These include:
Business Brokers:
Accountants:
Financial Planners:
