If you’re looking to sell your business, this guide will help you make sure it’s worth the asking price.
The first step is to evaluate how much your business is worth. This article will show you a few ways of doing that and give some tips on what to look out for when hiring a business evaluator or business broker.
It’s important that you get as accurate a valuation as possible so that both parties are satisfied with the final sale price. You want to be able to walk away from the deal feeling like it was fair and profitable for everyone involved. That means taking time at every stage of the process – from evaluating your company, through negotiating offers, all the way up until closing day – in order to ensure that everything goes smoothly and according to plan.
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What method of business valuation is best?
A company’s valuation is determined by its future revenue potential. To assess this, the business value should be calculated based on:
- The method of calculation used to determine Adjusted Earnings before Tax (AET) income, which will control how the Net Income number is derived.
- Which type of Multiples Method will be used to determine a Price-to-Earnings ratio and an Enterprise Value (EV).
- Which Discounted Cash Flow (DCF) method will be employed to calculate present value with projections over a period of time commensurate with the investment horizon for that particular asset.
In conclusion, valuation requires an in-depth analysis and assumptions about tax rate percentages, depreciation rates and growth rates etc.
Forget about capital assets when valuing your business
Business valuation is the process of determining an entities value. There are two types of business valuations, and it is vital to utilise the correct valuation method. There are fair market values which range from 0% (if there was no pricing history) to 100% (according to what the company’s assets would be worth in liquidation). Then there are accounting or book values that range from 40-75%.
Work out profitability by being aware of gross income and all outgoing payments.
You can calculate the profitability of your company by subtracting the recurring liabilities from the gross income. Calculating profits for different periods is a complicated task that requires some more advanced math skills, but if you have a sheet with all your expenses and income on it, use that to pinpoint any major changes in revenue/costs over time. For example, if you notice an increase or decrease in costs of raw materials then you’ll know what to focus on when figuring out where savings can be made.
Of course, it’s not black and white as there are also accounting factors like depreciation and deferred taxes to take into consideration but these operations will give most people a good idea about how profitable their business is as long as they’re honest with numbers.
Calculate the business value
A company’s value is typically calculated for the purposes of determining its market capitalization (i.e., what percentage to sell it for on the public markets).
We find that there are a lot of factors we need to collect before running a valuation. Some of them are historical and some empirical while others will be based on best practices judgement calls.
Often, since the company does not yet exist, all these inputs have to come from secondary sources as well as our own good judgment.
Factor in your market valuation
Making a list of all the things your business brings you value is an important way of evaluating it. Once you make that list, go through and assign each item on that list with a monetary figure. Then take the net worth of your business (the total sum) and divide it by the number of items on that list to get its average valuation from a dollar perspective for each asset on the inventory.
The final step would be to stagger these valuations from 1-10 or 1-5, etc., or alternatively use “high”/”medium”/”low,” which will give you an overview in comparative terms as opposed to just muddling numbers together in one column.
What is the ‘accepted will of the market’ selling a business?
The accepted will of the market selling a business is its market valuation.
In addition to total equity, the traditional accepted way to measure a company’s worth is book value. A company’s book value equals its assets minus liabilities and preferred shares (these investments are not as common these days).
Book Value is one of many most commonly used tools in assessing a company that has been sold: typically, an offer would be higher than book value if the seller believes there to be hidden gains or losses that can’t be accounted for in its current balance sheet. It can also happen if it includes other assets such as real estate or intellectual property rights.
The most important point when selling any kind of asset, not just a business are location and timing.
If you are considering selling your business, contact Marc Phillips today for a no obligation and confidential call. Tel: +61 455 150 990 Now.
How to Price My Business For Sale – Business Evaluation in 2021
Sydney born, having spent six years serving the community as a New South Wales Police Officer before deciding to relocate to the UK where he pursued his passion for sales, the financial markets and the real estate industry.
15 years as a licensed agent, ten of those years in fast-paced markets of the USA and the UK, Marc is an expert in business brokerage.
Business owners are invited to consider Marc when seeking a business to buy or sell in Queensland with local knowledge in the South East Queensland market including Brisbane, Gold Coast, the Sunshine Coast and the Darling Downs.
Local knowledge and surgical negotiation skills mean a keen eye on every detail. Marc has a profound knowledge of legal frameworks in all aspects of business acquisition and sales process.