Many business owners want to know what their business is worth. This may be because they might be thinking of selling it, in some cases a valuation is needed for other reasons such as share transactions, inheritance tax or simply just to manage and drive the growth of your business.
The valuation takes into consideration a number of factors and it is a subjective measure. The only true valuation, is the amount an arm’s length willing buyer will pay for it.
However, the main factors taken into account are the:-
- Net Asset Value of the business.
- Past profitability.
- Expected future profitability.
- General market conditions.
- Business name and reputation.
- Intangible assets such as intellectual property
- Financial and share structure
- Circumstances of the valuation
- Customers, the employees, the records and many more.
The other key benefit of a valuation report is that it makes clear the factors that drive that valuation. This allows owners to focus on actions that will grow the value in the future. That may include protecting intellectual property, developing niche products or locking in key customers on long term contracts. Once you know where the value comes from, your chances of growing it improve enormously.
It is important to understand that valuations are not a science. Many clients over estimate the value of their business and have unrealistic expectations of how easily and quickly it might sell. Others carry on striving to attain a value that they actually passed some years before. Knowing the likely value is key to making the right choices.