Often the most critical component of the initial stages of selling a business is determining an accurate business valuation. This will ensure that you achieve a prompt sale and maximise your return. Price your business too low and you’ll miss out on your hard earned money. Price your business too high and there will be no interest.
Setting the correct price for your business is not an easy task. At Intelligent Business Transfer we highly advise that you utilise a professional consultant to achieve an accurate valuation. Our professional valuation experts possess a great deal of experience selling businesses similar to yours, along with knowledge of the local market. They will assess your business’ financial position, geographic location and the demand for your type of business. We offer a free business valuation to get started.
Before you meet with a professional valuation expert, there are number of assessments you can make that will help the valuation process and provide you with an idea of what the business is worth.
1. Assess Your Tangible Assets
Although this is more applicable to capital intensive businesses, this is useful for all businesses in assessing overall business value. This part of the valuation is rather straight forward; all you need to do is write down all of the business’ physical assets. Once you’ve compiled the full list you need to attribute purchase cost, age and condition to arrive at an estimate of remaining value. This assessment of business value is typically referred to as the liquidation value of your business.
2. Valuation Options
The Multiple Earnings ratio is the most commonly used method for assessing the value of a business and is often the basis for other valuation techniques. "Multiple of earnings" calculate the earnings a buyer will be able extract from a business before interest, taxes, depreciation and amortisation. The multiple ratios used vary according to industry, location, size of the business and turnover. Although the general calculations might be relatively easy to arrive at, there is no standard ratio that can be used across all types of business.
Typically though for the majority of our sellers we realise that not everybody will be able to produce the documents required to calculate a Multiple Earnings valuation. If you can't, don't worry! Your Intelligent Business Transfer consultant will work out your valuation by looking at the net profit of your business.
Essentially we are trying to work out what the earnings and profit available to the buyer of your business is.