VALUING YOUR BUSINESS
It goes without saying, that you when selling your business you want to get the best possible deal that you can. But how do actually put a value on your business and what can you do to ensure its price is as high as can be justified?
Defining your assets
First of all, look at your assets. If someone bought your business, what would they really be acquiring? There may be an inventory of machinery, a list of employees and a certificate for the premises but these are only part of what your business is worth.
Consider what you've established over time and how to define it. Honest assessment of your business's assets will attract potential buyers and be financially rewarding for you.
You should look at all of the following:
|You've built up a reputation which is now intrinsically linked with the
name of the business.
||You have a phone number, fax number, email address, and probably a
website which are already known by your clientele.
||There's the goodwill of your customers, who are loyal to the business
because they appreciate the standard of your service.
||Trade links are already in place, involving contracts with warehouses
and suppliers, for example.|
Whoever buys your business will profit from it being unique and ready-made and the price should refect these advantages.
Grooming your Business for Sale
Appreciating your assets is all well and good, but remember, your business is only worth what the highest bidder will pay, so it will need to be operating at its best when you're looking to sell.
It is important to make all the paperwork as impressive as possible. Try to:
|Increase your sales figures through aggressive campaigning or offering a
special deal for customers.
||Reduce your costs by avoiding making big purchases in the run up to the
||Eliminate certain expenses that need not be listed, such as company
vehicles used mostly for personal use.
||Ensure that your information systems are up-to-date and transparent so
that they will instill trust and confidence in the potential buyer.
||Formalise employment contracts or deals with customers and suppliers.
||Take care over presentation and attention to detail so that any
questions a buyer may have are answered in advance.|
Even if you taken into account all of the points mentioned above, there are a number of factors you can't control that will affect the value of your business.
In addition to the business' recent profit history and the value of its assets, the valuation will be affected by the current market demand for that type of business and the current economic climate at the time - this will always affect certain businesses more than others.
Other factors also often come into play, perhaps due to special circumstances of the particular buyer and seller. These are trade offs between cash and terms, and relative tax consequences for the buyer and seller, which depend on how the transaction is structured.
Despite the range of factors that can influence the value of a business, there are a couple of rule-of-thumb formulas. These formulas are more a quick means of established a 'ball park' figure than an accurate sale price and are normally calculated as a percentage of either sales or asset values, or both.
To get an actual sale price, you should contact a business property agent to come and make a sale. As you would do when buying a house, get a number of valuations to get an average.
Even if you intend to sell your business yourself, there's nothing stopping you getting a professional valuation. Also, look at similar businesses being sold in the area and look at how long it took for them to be sold - how quickly you need to or able to sell, could have a significant affect on costs and so will need to be reflected in your sales.
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