There are many different ways of valuing a business. It’s also worth remembering that the final word on its true worth will always be the amount that the highest bidder will pay for it.
If you’re planning on selling your business now or in the future, then knowing how much it is worth is of course of prime importance. However, there are many different ways of valuing a business. It’s also worth remembering that the final word on its true worth will always be the amount that the highest bidder will pay for it.
Supply and demand
The worth of a business is far from being a cold hard fact. There are many factors that will work together to determine the value of your business at any given time. Supply and demand is as important as ever. If there are many buyers out there looking to purchase your type of business and only a few others selling, then you will inevitably be able to get a better price for it. But of course the opposite is also true, and if you are one of many similar businesses selling to just a few interested parties, then it may be hard to get a good price.
Growth potential
Potential for growth is another major factor that will affect the value of your business. This can have as much to do with the type of business you have as with the specific assets and customer base of the business itself. Businesses in declining sectors are generally hard to sell for a good price, although if you have something that differentiates your business from others of its kind, plus a solid customer base, then it might just be the exception to the rule. A good example of this would be a town pub doing a roaring trade in food during difficult times.
If your clients are other businesses rather than consumers, then the stability and growth potential of these businesses may also influence how much a potential buyer is willing to pay.
Assets and profitability
The physical assets such as property and equipment that your business owns can also be a key factor in determining price. If a buyer can see that your business is ready to go ‘straight from the box’, they will usually be prepared to pay more for it. Conversely, buyers may be less keen if the business currently lacks the physical assets to compete effectively in its sector.
Finally, profitability is always going to be a large determining factor when selling your business. At the end of the day, business is about making money, and if yours isn’t making any, then it will take a substantial amount of persuasion to make buyers believe they will one day see a good return on their purchase.
