How to Evaluate Your Business’s Worth Before Selling
When your “New Product Development” is a business ready to sell
Did you come up with a great innovative idea, created a business from it, made it successful into the market and now are you considering selling your business?
Before putting your life’s work on the market, it’s essential to understand its value accurately. Knowing how much your company is worth allows you to build a strategic sales plan and maximise its possible sale price.
To help you, we’ll review several critical measures to assess the worth of your business before listing it for sale so you can boost its current and future value. Continue reading to ensure that you are getting the finest bargain available.
6 Ways to Evaluate Your Business’s Worth
For business owners seeking to sell their company, evaluating its worth is crucial. Understanding the worth of your company enables you to set an appropriate price and lure possible purchasers. But how do you go about determining the worth of your company?
Here are six ways to evaluate your business’s worth before selling:
1. Examine Your Financial Statements
Financial statements are a business report card. They show your company’s assets, liabilities, profits, and losses. Look at your balance sheets, income, and cash flow statements over multiple years.
Analysing these helps identify trends, understand profitability, and determine your business’s net worth (assets minus liabilities). Take note of any irregularities or areas for improvement, as these can affect your business’s value. Remember, your company is worth more than its physical assets – its financial track record is also key.
2. Consult a Professional Business Broker
Consulting a professional business broker can simplify evaluating your business’s worth. These experts possess deep knowledge of the market trends and have experience dealing with various industries.
They bring objectivity to the process, helping you avoid over- or under-estimating your company’s worth. Lloyds Brokers offers professional assistance, understanding the nuances specific to your business category. This gives you a realistic idea of your business’s value and saves time and resources.
3. Consider Market Trends and Industry Benchmarks
Awareness of market trends and industry benchmarks is vital when evaluating your business’s worth. Essentially, this means comparing your business to similar businesses in your sector. Look at the selling price of comparable companies and the industry’s average price-to-earnings ratios.
Market trends show your industry’s buying and selling activities. At the same time, benchmarks are a standard for measuring your business against. Together, these can provide a valuable perspective on where your business stands in the market and a fair estimation of its worth. It’s like looking at your company through the eyes of the market.
4. Take Note of Your Assets and Liabilities
Your assets and liabilities provide a basic picture of your business’s financial health. Assets include anything your business owns with monetary value, such as buildings, equipment, inventory, or cash reserves. Liabilities, on the other hand, are what your business owes to others, like loans or unpaid bills.
Subtracting your liabilities from your assets provides you with your business’s ‘book value’, a handy place to start. But remember, this is just one aspect – market trends, growth potential, and intangible assets also significantly impact your business’s value. Think of it as the financial skeleton of your business value.
5. Evaluate Intangible Assets
Intangible assets are the non-physical assets that add value to your business. These could include things like your brand reputation, proprietary technology, customer lists, or even the skills and knowledge of your team. Although they can’t be touched, these assets can greatly enhance your business’s worth.
Imagine a popular restaurant – it’s not just about the physical resources, but also the secret sauce recipe and excellent service that attract customers. Therefore, evaluating your intangible assets involves understanding their unique benefits to your business. Remember, they might be invisible, but they can significantly affect your bottom line.
6. Analyse Potential for Growth and Future Earnings
The prospective growth and future earnings of your business hold substantial value. Your company’s future potential is as important as where it is now. Consider your business’s market growth rate, anticipated revenue, and profit margins.
Do you have plans to expand or diversify? Is there a positive demand trend for your product or service? These factors outline the potential earnings of your business. In essence, purchasers invest in your company’s future potential rather than merely purchasing it now. Consider it a vision of what your company could become.
Evaluating your business’s worth isn’t just about numbers on a balance sheet. To set a fair and realistic price for your business when selling, consider financial statements, professional advice, market trends, assets (tangible and intangible), and future growth potential.
A holistic view helps attract buyers and secure the best possible deal. Remember, your business’s value is a blend of its past performance, current status, and future potential. Happy selling!