About 9000 plus businesses are sold each year. You reach a point where you get a lucrative offer or want to try something else. However, before you take another step, it’s best to get an honest business valuation. It’s calculated using business assets, income, debt, and investment potential. Below are some methods you can use to determine the value of your business
1.Current Market Value
The current market can play a significant role in determining the value of your business. It takes into account similar enterprises that sold recently. Here industries help set the margins that determine how valuable a business is.
For instance, during the pandemic, delivery companies witnessed huge business growth. For this reason, their value went up and many are now worth much more. If you want to sell your delivery business today, you most likely will get a higher valuation thanks to this change in events. Usually, the market plays a significant role and can help you determine how much to accept. Anything less is seen as an unfair market value. Due to high competition, you can even attract more offers and gain much more. Therefore, it’s wise to get in more than one offer before deciding now that you know what your business is worth.
2. Assets and Liabilities
Everyone who shows an interest in buying your business will want to know its assets and liabilities. How much debt does it owe? Such information must be available. Usually, you already know what assets your business has plus all the liabilities. Write them down in detail as you make an effort to determine the market value. Remember, assets are seen as adding value to the establishment.
At the same time, liabilities take away, including loans and credit card debt the business has incurred over the years. By taking the assets and subtracting the liabilities, you get the business book value. Always strive to get a positive result because a negative one means your business isn’t worth as much as you thought.
Not many buyers will go for a company that gets a negative valuation. It means you owe more than you have. However, never settle for the book value as the final amount on offer, especially when you have more assets than liabilities. Check the current market status once you have book value to determine a good price.
3. Income-Generating Potential
Even with more assets than debt, most buyers want to know your business is profitable. It must have income-generating streams that are worth the asking price. Here, your financial history comes into focus showing how profitable you’ve been for a given duration.
Can the business generate enough profit to sustain itself for years to come? Such longevity is attractive to buyers who want to continue reaping the rewards from the business. For instance, to value a pharmacy, you check for all revenue-generating streams including wholesale pricing.
Such information plays a vital role in determining the market value for your pharmacy and similar businesses. Those with better value have established systems that generate higher profit margins. Once more, the market you’re in plays a crucial role in how much profit you get. Besides, you can know the future profit and loss margins for the business. Armed with this, you stand a better chance of getting a higher value for your business.
4. Investment Potential
It applies when you want to sell off property as part of the business. Understanding the value of such property can help you know the worth of the business. You might not know the buyer’s plans, but you can predict how valuable the property is.
For example, if you’re selling a store in a now busy neighborhood, think of potential growth opportunities in the area. Such predictions help you ask for more since the potential is higher for the new buyer. Admittedly, they can tear down the old building and set up a new, more profitable one. You don’t want to regret selling the business plus property at a lower amount and watch someone else reap big.
Summing Up
Before selling a business to potential buyers, you must know its current value. Using the methods listed above, you can get an exact amount. Still, it’s wise to hire an expert to help you with the process to gain great rewards from the sale.
