Everyone wants to know what their business is worth. It is usually out of curiosity, or if they have had enough of their business they call someone in to see what it is worth.
There is a saying that if you ask your accountant, he or she will operate on the rule of 2. If you are selling they will get the profit and multiply it by 2. If you are buying they will get the profit and divide it by 2. This is just the way people look at business valuation. Buyers try to get something for as cheap as possible. Sellers realise that they only sell once, so they try to magnify the value. The truth always lies somewhere in the middle.
Most business owners have an inflated view of business value. So it is worthwhile to take a reasoned and logical approach, so you don’t end up with inflated expectations.
Businesses can be valued usually according to their income or their asset value. And it always helps if there are comparable sales in the market place to back up the valuation.
The shame is that business owners only think about valuation when they are thinking of selling their business. In fact, they should be thinking about it always.
When they are thinking of growing sales, they should be asking “Will this also build value”
When they put equipment in they should be asking “How will this affect business value”
Sure profit is important, and cash-flow even more important. But you can still look after both cashflow and business value if you put a little more thinking into it.
If you are looking for a valuation, it is always a good idea to get your accountant’s opinion as well as a business broker’s. If you are looking to sell you could check out our broking site.
We have our own valuation site here
We look at business value here and show you in this video how you might value your business. Hope you find it useful.
If you want to conduct an audit of your business to see how ready it is for sale go here.
Or if you want to get started right away on building your business for sale download our free ebook