One of the first and most important steps to take when you consider selling your business is to determine the value of your business and its assets to potential buyers.
It is a sad fact, but less than half of business owners in Australia are aware of how much their business is worth in monetary terms.
There is no quick and easy formula for determining the financial worth of your business. Still, there are a few key factors to consider when making an estimation, as well as a few ways of increasing the value of your business in the eyes of potential buyers; putting in a little bit of extra effort now could yield a greater sale price and more money in your pocket at the end of the day.
To help determine the most appropriate sale price for your business, consider the following factors:
The size of your business depends not only on the number of employees you have on staff but also on your client base and the reach of your products and/ or services. Remember, while larger business tends to be deemed less risky investments as they are seen to be more stable, smaller business can often be more attractive to potential buyers because of a lower asking price, smaller commitment and greater growth potential.
A realistic estimation of your business’s potential for growth will help you determine its future profitability and determine its current value. Consider the rate of growth you have experienced thus far, the financial climate and market trends to ascertain your business’s potential for growth. A high growth rate, proven or potential, will add attractiveness for potential buyers as it would enable them to pay off their investment quickly so that they could focus on making a profit.
While the size of your customer base is an important factor to consider when valuing your business, the quality of your clients will perhaps add more weight to your bottom line. Think about your key clients, their reputations, their standing in the marketplace, and the amount of business and revenue they generate for you. A reliable base of key clients will be worth more to a potential buyer than a high number of small clients that cannot necessarily be depended upon for future sales.
Prospective buyers will focus much of their attention on your business’s bottom line and current profitability. They will be looking to ensure that your cash flow is steady and reliable, that your balance sheet is properly managed and that your finances are in order. Complete and up-to-date financial documentation and a well-structured financial department will make your business appear more reliable and help increase its value.
Valuing your business accurately is vital when determining your asking price; if you set it too high, you may dissuade prospective buyers or make you appear as though you are not serious about selling. Too low a price will decrease the perceived value of your business and its assets and make buyers less likely to believe in its worth.
For appropriate valuations, consider consulting with a professional (such as a valuation expert).