Written by: Bryon Morrison
Are you considering selling your business, but unsure how to determine its worth? Valuing a business is an intricate process, but is necessary to guarantee that you get the best price possible. We’ll go over the different methods for valuing a business for sale, as well as tips from experienced entrepreneurs and advisors in this article.
When valuing a business for sale, a detailed assessment of financial and non-financial assets, including physical assets, intellectual property, brand reputation, customer base, and future earning potential is required. Determining the worth of these assets requires a combination of methods and professional assistance to ensure that you acquire an accurate and fair value for your business.
Method #1: Asset-Based Valuation
Using the asset-based valuation method, the value of a business is calculated by subtracting its liabilities from its own assets. This method typically works well for companies that have tangible assets like inventory, equipment, devices, machinery, and real estate. It may not be the most accurate method for companies with intangible assets like intellectual property, goodwill, and brand reputation.
Method #2: Market-Based Valuation
The market-based valuation method compares the value of a business to similar businesses that have recently sold in the same industry or market. Valuing a business for sale with this method is suitable for businesses that operate in competitive markets with publicly available data. It can provide a relatively accurate value for your business based on real-world market conditions.
Method #3: Income-Based Valuation
The income-based valuation method determines a company’s worth based on its potential for future profits. This approach is appropriate for companies with consistent and predictable cash flows, such service-based enterprises. Based on your company’s capacity to create money in the future, income-based valuation can help you determine its fair worth.
Valuing a business for sale through an income-based method involves projecting future cash flows for your business and discounting them to present value using a risk-adjusted discount rate. This method can be more complicated than the other methods and requires expertise in financial analysis.
Expert Tips for Valuing Your Business
- Recognize market and industry trends: To obtain a precise evaluation of the market and industry circumstances, consult with a specialist advisor who has expertise in your sector.
- Get a third-party valuation: An impartial and unbiased evaluation of the worth of your company may be obtained by getting a third-party valuation from an experienced adviser. This can help you in negotiating a reasonable price for your company with prospective buyers.
- Take into account the intangible assets: Things like intellectual property, brand reputation, and a healthy customer base can substantially boost the value of your business. To guarantee you receive a fair price when evaluating the company, take these assets into consideration.
- Prepare your financial statements: Having current, precise financial documents will help you convince potential buyers that your house is in order. Ensure your financial statements are orderly, written by a qualified accountant, and simple to grasp.
- Use multiple methods: No single valuation method can provide an accurate value for every business. Consider using a combination of methods when valuing your business for a sale to arrive at an accurate and fair value.
Planning Ahead for a Business Sale
Preparing to sell your business doesn’t mean that you have to get rid of it. It only signifies that you will be prepared for any potential event that presents itself. That could be mergers, acquisitions, investments, scale financing, or other opportunities. Planning ahead for any of these situations will simply mean that you have options and you’ll be in the driver’s seat for any possibilities and opportunities that may come your way.
Proxxy offers experienced Certified Exit Planning Advisors and entrepreneurs that can help you assess how ready you are to sell your business and how attractive it looks to buyers. Our simple process can help you prioritize the tasks related to selling your business and save time and money. We can help you understand your business’s growth stage, illustrate what initiatives should already be completed, and give you a glimpse into what’s coming next.
Our experts can show you how the processes and documentation required to sell your company down the road will also improve the way your company operates today and help you scale. Working with trusted advisors will increase your sales, improve your EBITDA, and improve the multiples at which you sell. That’s why we are known as “Value Multipliers.”
As you go through the process of selling your business, it will require specialists like wealth managers, CPAs, lawyers, investment bankers, brokers, financiers, etc. Driving that process is your Proxxy, the player serving only you, the Founder, and the only player not incented to sell while also saving you time and money when tapping each of these specialists. They form strategy and execution teams around each executive to ensure consistency in what can often be a multi-year process of selling your company.
Your Proxxy is focused entirely on you, the Founder. They can serve as a coach and confidante, but they’re also the group that rolls up their sleeves and executes the plan.
In conclusion, valuing a business for sale requires careful consideration of various factors, including assets, market conditions, and earnings potential. By understanding the different valuation methods and expert tips, you can arrive at an accurate and fair value for your business. Remember to work with an expert advisor, prepare your financial statements, and consider the intangible assets to ensure that you get the best possible price for your business. Planning ahead expert’s simple process will also increase your chances of success and maximize the value of your business. Contact Proxxy today to learn more.