If you want to sell your business, you need to set an accurate and competitive selling price. To accomplish that, you’ll need to analyze your records, appreciable assets, and the current market. Even then, you’ll probably want to bring in an experienced business appraiser to ensure you end up with the right numbers.
After you’ve prepared your financial statements for the past three years and turned them into a seller’s discretionary earnings statement, follow these rules of thumb.
To estimate the value of your company’s assets, first take an inventory of tangible assets like equipment and inventory. Then, estimate the value of your intangible assets such as intellectual property, brand recognition, current contracts, and anything else that may bring value to a new owner. Estimating the value of your assets can be difficult, so you may want to consult with an appraiser to ensure accuracy.
Knowing your asset valuation gives you a starting point for estimating your business’s current value. But to entice buyers, you’ll also need a clear picture of your business’s earning potential, which can be estimated through price multiples.
Price multiples provide a tool for buyers to estimate their return on investment. The toughest part of this step is determining the right multiplier. This number should be based on your geographical region and industry, so do your research and consult a professional to confirm you’ve arrived at the right multiplier. Once you have this number, multiply it by your annual revenue to get a clearer picture of what your business is worth.
It’s also a good idea to evaluate recent sales of comparable businesses to ensure you understand what selling price range is realistic in the current market. Be sure the businesses you evaluate are relatively close to you in location. A Mergers & Acquisitions firm or website like BizBuySell can help with this step.
Not satisfied with the current value of your business? There are some steps you can take to increase its value. Aside from a track record of year-over-year profit growth, gathering evidence that you can provide to potential buyers that show your business is well-run can also add value. This evidence can include organized documentation of financial records, licensing, proof of health and safety compliance, and staff policies and contracts.
Correctly valuing your business is critical if you want to be able to sell it in a competitive market. Consulting an experienced business appraiser will ensure you have an accurate valuation based on a thorough understanding of the latest market conditions. An appraiser will also help protect you from making potentially costly valuation mistakes.
If you want to sell your business, it’s critical to have the proper valuation. These steps will bring you closer to your goal.