Selling your business can be an exciting, challenging, and even anxiety-inducing proposition. Many business owners may know their company like the back of their hands and have a well-rounded knowledge of their industry as a whole. But many of them don’t know how to value a business for sale and that could pose a significant problem when the time comes to sell and receive maximum value based on the current market.
If you undervalue your business, you run the risk of selling for too little or not selling at all. Neither of these are acceptable alternatives to receiving what you deserve. So, let’s take a look at the various factors that you need to consider as you determine the true market value of your business.
Calculate the Value of Your Assets
You start with the real math of your company. Consider all of the assets that you intend to sell as part of the transaction, tally them up in total. Don’t forget anything important, be sure it’s all accounted for in your calculations. If you’re not sure which assets to consider, think about what the company owns, the inventory that you have on hand, any equipment that is essential to the operation of the business. These are just some of the important things to take into account. Once you’re done with that, subtract any debts or liabilities that are hanging over the company.
Account for Your Revenue
Consider what your company generates in annual earnings. How much revenue do you currently have and what do you anticipate bringing in? Once you have these numbers in mind, start to calculate a value. Make some comparisons to other business in your industry and their worth based on their sales. You may find that your business could be worth two, even three times the revenue that it generates.
Assessing your company’s market value is also dependent upon the state of the market at the time you wish to sell. Start basing your determinations upon criteria such as the level of competition that exists in your industry and how much of it your business will need to contend with in the coming years. Think about how well prepared (or not) your business is to meet the challenges of that competition.
You can also think about additional critical factors like the rate of growth of your business, sales, profits, and forecasts of industry trends that could affect your company’s ability to succeed under these factors. Risk is also vital. How much of it is associated with the operational capability of the business. How can your buyer minimize the risks that are inherent to the business and the market as a whole?
Conduct A Discounted Cash Flow Analysis
Performing one of these takes your business’s annual cash flow and incorporates into the future of the company, then discounts the value of your company’s future cash flow to the present. This formulaic equation may sound complicated but it’s rather easy to conduct by using a net present value calculation. There are a number of NPV calculators available online and they are simple to use.