Valuing Your Business

There is no magic formula to valuing a business. An accurate valuation will depend on a number of factors:-

The size of the business

The size of the business Larger firms tend to be viewed as less risky therefore attract a higher price, even if they are less efficient than smaller competitors.

The prospects for future growth

Buyers sometimes pay more for businesses with high growth rates because they repay the investment more quickly. You might consider selling before turnover and profits level out.A strong order book going forward or a record of regular profits are good indicators for your company’s value.

Diversification

If you have a wide ‘business mix’ it can affect the sale price, since buyers may only be interested in one area or market.

Customer base

The size of your customer base is important, but so is the quality of your customers and the cross-selling opportunities.A strong client base can be worth a lot. If they are blue-chip, with strong history of trading with you, then estimates can be taken on future earnings small clients have become big ones, or if you have a history of being recommended by clients, these will both be good indicators of your company’s value.

Ultimately, the value of your business will be determined by the laws of supply and demand. If there are plenty of willing buyers for your type of business and few sellers, you will get a good price, and if you can allow buyers to set a price through competitive bidding, so much the better.

While a business is only ever worth what a prospective buyer is prepared to pay for it, there are steps you can take to increase the value of your business, and ways to make a reasonable estimate of that value.

Buyers sometimes pay more for businesses with high growth rates because they repay the investment more quickly. You might consider selling before turnover and profits level out. A strong order book going forward or a record of regular profits are good indicators for your company’s value.