The Value Of A Business

So you want to sell or buy a business. But you have no idea where to start when it comes to business valuation and it’s follow-on when buying, business e-valuation.. Where do you start?

There are professionals who specialise in this sort of thing, but here are a few pointers to consider. Firstly, be aware that as with most valuations, it is as much an art as a skill to arrive at a price. Your first sensible place to start then is to watch all relevant business valuations and sales keenly – for the maximum period of time. This might be through a specialist agency that you can get onto the mailing list of. Or just speak to your local estate agents and keep speaking to them, for some time. Try and detect trends, the affect of various factors such as location, years trading, presentation etc. Make it a hobby.. it will pay off in the end.

Key factors you will want to consider in the approach to your own valuation are, if your selling:

  • Costs and how well they are controlled
  • Historical, current and projected cashflow and profit
  • Strength of customer loyalty, goodwill and profitability
  • The business growth potential
  • Value of assets for example, property, equipment, debtors and stock
  • Your order book
  • Debt and other liabilities, existing, promised or necessary future
  • The staff and the experience and commitment of key staff
  • Management record
  • How dependent the business is on staff/management skills and extent of future involvement
  • State of the economy in general and your market in particular
  • Number of potential purchasers
  • Patents
  • Registered Designs
  • Trade Marks and
  • Other intellectual property.

With these things in mind you can take steps to make your business as valuable as possible if you start planning well in advance. Consider an exit strategy (see other Lawdit articles).

As said above, any valuation will be subjective. Vendors will reckon a higher price than purchasers, and will often place too high a value on their business. The value is what a purchaser is prepared to pay.

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