There is no exact science to valuing a business and it usually comes down to how much the buyer is willing to pay for it and how much the seller is willing to accept. However, there are several factors which the parties should consider when they are looking to value a business. These include:
- Establishing what are the reasons for selling the business.
- The condition of the market and the industry.
- The business name, brand, reputation, trade marks, goodwill and designs.
- Any intellectual property rights owned by the business.
- The value of any machinery and equipment owned by the seller.
- The financial condition of the business.
- The importance of the employees to the business and the skills they offer.
- The markets the business operates in and the location of the business.
- The value of any assets owned by the business.
- SWOT Â the strength, weaknesses, opportunities and threats of the business.
- Customer value and the value of any contracts and orders.
- The tax ramifications for the buyer and seller.
Some of these factors may be difficult to quantify and different methods may be used for valuing your business (see our article on Valuing Your Business).
Both parties are always going to be concerned that they get the best deal and it usually comes down to a compromise.