“How do I figure out what my business is worth?” is a common question that we receive from our clients. In this post, we will explore the things you need to consider.
You’ve put your entrepreneurial skills and hard work into building a reliable, established business and you’re at the point where you’re thinking of selling it.
The first step is to work out what it’s worth – and several factors come into play when determining this figure. The following steps act as a good rule of thumb when calculating a valuation.
- Review your financial statements
Your business’s financial statements provide a valuable snapshot of what your business could be worth. Review your:
- Profit and loss statements
- Balance sheets
- Cash flow statements
Use this information to assess your company’s financial performance over the last few years. Has it been consistently strong, or are there weak spots? How could this impact the selling value?
- Calculate your business assets
The assets your business owns make up a sizeable chunk of its worth. Equipment and inventory might seem like the most obvious here, but there’s also considerable value in the less-tangible elements.
Consider the relationships you have with customers and the brand reputation you hold in the market. Does your business own intellectual property? Do you have a customer database that would be attractive to potential buyers? All of these could contribute to a higher valuation.
- Conduct a market analysis
Understanding where your business lies in the market will help you gauge the attractiveness of your business to potential buyers.
Dive into the current industry trends, determining where your business fits into the competitive landscape and market demand.
- Evaluate your cash flow
Take into account all of your business’s revenue streams and outgoing costs to get a clear idea of your cash flow.
Be mindful of recurring contracts and invoices yet to be paid, and factor in customer retention rates. It’ll give you a good picture of your business’s sustainability and potential for future growth.
- Look at comparable sales
You’ve likely already got a good idea of what your competitors are doing, but spend time researching the recent sales of various similar businesses in your industry.
It’ll paint a picture of the market value of businesses like yours, as well as the price multiples used in similar transactions.
- Seek expert advice
To feel confident you’re getting the most accurate valuation (and not underselling!), consider seeking the help of a professional appraiser or business broker.
They specialise in valuing and selling businesses and will provide an independent assessment to help you arrive at a realistic figure.
“How do I figure out what my business is worth?” There are a lot of factors to consider when calculating the value.
Determining the value of a business is a complex process and it’s important not to rush into things. There’s more than one methodology to arrive at a valuation, so it’s advisable to consult with professionals and conduct thorough due diligence to get the best assessment of your business’s worth.
We’re here to help you figure it all out. We’ve spent years working alongside established business owners, guiding them through the valuation process so they feel confident they’re getting the most accurate assessment. Want to know more? Get started by filling in our quick form.
