Valuing a business, art or science?

‘What is my business worth?’ Good question. And you’re not the only one to ask it.

My experience suggests that asking for the right price feels like more of an art than a science, and, although there are certain formulas, common sense must ultimately prevail. If you are too ambitious, you’ll risk squandering your fresh-to-market feel and if you go too low you could miss out on your rightful dues!

The value of your business depends on the equilibrium between profitability and risk. Valuations generally start with past profits and the value of assets, but the final figure lies tied up in any number of intangibles such as brand, staff, customer list and financial performance.

Remember, your buyer will mainly be interested in past performance as an indicator of future performance. But also remember that they’ll be looking at your prospects also, and will have a keen interest in any long-term contracts and/or recurring revenue streams.

Arriving at a value will usually require analysis of the company accounts, leases, contracts, and prospects as well as stock and assets. Generally, small businesses are valued by adding a goodwill payment to the ‘stock at valuation’ or SAV figure, verified against the value quoted on the balance sheet.

Make sure to take note that the circumstances of why you are selling your business may factor in on its market value. If you want a quick sale, for example because of ill health, you may have to look at a reduced market value.

There are many methods to value your business, these include:

  • Adjusted net profit
  • Asset valuation
  • Discounted cash flow

But which one should I use? The answer is dependent on the type of business you are selling.

Ultimately the real value of your business is in its overall proposition – the brand, the product or service proposition, the infrastructure, the knowledge base, the client list and finally the profitability.

It can be a tricky endeavour to value your business. The Business Partnership has over thirty years’ experience in helping people value and successfully sell their businesses. Contact us today for expert advice and a free market appraisal.

At the Business Partnership, ‘We Value Your Business’