It is true that a business is only ever worth what a prospective buyer is prepared to pay for it.
But according to research, nearly half of business owners who are planning to sell their business are unaware of how much it is potentially worth. The problem is particularly marked for the smallest businesses, with only 37% having a clear idea of the potential value of their business.
The trouble is there is no precise valuation formula that can be applied to all businesses. And ask a number of accountants for a valuation on your business and they will all probably come up with different figures. Consequently it is often said that valuing a business is as much an art as a science.
However, there are steps you can take to increase the value of your business.
An accurate business valuation will depend on consideration of a number of factors that we will determine and evaluate with you including:
the profits trends with usually the historical profits of the last few years being a significant determining factor in the value. Identifying significant non-recurring expenditure or events can have a significant effect on achieving a higher value
buyers will sometimes pay more for businesses with high growth rates because they will potentially repay the investment more quickly. Evaluation of where your business is in the growth cycle will help to determine its value and when is the best time to sell
assessing the size of your customer base is important and ensuring the business is not overly dependent on one or a small number of customers. But so is the quality of your customers and the cross-selling opportunities. A potential buyer will be really interested to know these details
determining the risks associated with your business both external and internal
the pattern of your cash flow cycle , its predictability and certainty
the strength of the balance sheet and the level of debt and any contingent liabilities
the degree of dependency of the business on the knowledge of you the owner of the business. The more the business is systemised and operates fully whether you are there or not, the more valuable your business will be
having a realistic value of what your business is worth now and the possibilities for increasing its value
if the realisable value of your business forms a major component of your retirement planning, having an idea of what the business is worth now enables you to plan how to improve the value of it for when you retire
awareness of the threats and opportunities faced by your business enable you to mitigate the risks and take advantage of the opportunities to increase the business value.
establishing a realistic timeline to maximise the value of the sale of the business