How to value your business for sale
The value of your business depends on future earnings or
cashflow. There is also the assets you own, which could be
machinery, property or in terms of your human capital. There is
also the stock you own and any vehicles. There is also the value of
your brand, plus what debts the business has needs to be taken into
account. There may be value in intellectual property. This guide
gives pointers about how to value your business.
- Assets
- Growth potential
- Client base
- Realising your efforts
Assets
Assets can be tangible, such as property, machinery or vehicles,
but there are also more intangible assets, like the employees or
value of your brand name. If you own your offices or factory site,
it will have a value, as will the machinery and vehicles owned by
the business. These are simple to estimate with the help of
experts. People and brand is less simple to quantify and, in terms
of brand, will be as much guestimate than anything else.
People-wise, it may depend on their contracts and equity
positions.
- Property
- Machinery
- People
Growth potential
A strong order book going forward or a record of regular profits
are a good place to start in terms of a valuation. A business is
often valued at a multiple of earnings. The multiple depends how
big the business and how big the profits. Intellectual property
also has a value and should be kept in mind. Consider debt levels
and factor in the point of the economic cycle and state of play in
your sector. Seek expert advice on how to value your business. Get
more than one opinion.
- Order book
- Multiples of earnings
- Expert advice
Client base
A strong client base can be worth a lot. If they are blue-chip,
with strong history of trading with you, then estimates can be
taken on future earnings potential. If small clients have become
big ones, or if you have a history of being recommended by clients,
these will both be good indicators of your company's value. Are
your relationships profitable? Assessing the combined worth of
these clients, the assets and future earnings is one thing, but
external economics will also have a bearing, so keep all estimates
realistic.
- Blue chip?
- Profitable?
- Macro economics
Realising your efforts
While you want to make as much as possible from the sale, any
estimated value must be realistic. You may speak to business
brokerage firms that quote an attractive but very high price, while
others may undervalue it because they either don't have the
industry knowledge or don't have the contacts. A fair price is what
you're looking for so shop around and get more than one opinion.
Ultimately, you will only sell the business once, so do your
research, get a figure in mind and stick to your guns.
- Shop around
- Be realistic
- Realise the value
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