How To Determine The Value Of A Business You Intend To Sell?

Jun. 16, 2018 9:52 AM ET
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  • Around 80% of the businesses don’t sell because the buyers don’t educate themselves or avoid taking advice from experts.
  • All the assets within the business and owned by it including the stocks should be calculated to find the final value.
  • Compare it with another company similar in nature.
  • Apply the rules of thumb of different industriesfor valuation of a business.

At a given time, there are about 15 prospective buyers for a particular business which is listed for sale. Unfortunately, only 20% of such businesses will ever sell because the buyers possess limited knowledge about business handling. First of all, the buyers need to do the market research to determine which business suits them otherwise, they end up wasting their time and that of the seller as well.

For the sellers, it is extremely important to establish the market value of their business before they can put it up for sale. This market value will serve to be the determinant for the future earnings. Remember that it is indeed a tedious task to calculate the value of a business because of the liquid assets like stock shares which are a part of it. However, there are plenty of ways to find the worth of your business and its potential in the long term.

Calculating the Stock of All the Assets

This includes each and everything which is a part of your business or owned by it. For example, the land, the building, and the office equipment will also add to the value. Apart from this, if there are other assets owned by the company, they will undoubtedly be included in the final value. Never forget the cash, accounts receivable, and the stock prices because all these also contribute to the overall price.

Find Comparable Companies

First of all, one needs to eliminate any kind of discretion which is involved in choosing the kind of businesses which are comparable. Ideally, only those companies must be considered which are in the same niche and roughly the same size. Additionally, make sure that the recent sales of the company are considered because only that will help in determining the truest value of your business.

The Simple and Obvious Rules

Finally, the most common and easiest way to determine the worth of your business is to follow the general rules of thumb in the industry. This is done while disregarding whether these rules make any sense in the financial world or not. For example, the accounting firms are valued on the basis of their annual revenue whereas software houses are valued 3 to 5 times their annual revenue.

Given that almost 60% of the business owners are ready to transfer their ownership interests within ten years, it is essential to know the right business value before the negotiation process starts. It is a great idea to get help from an accountant or a business valuation professional and use platforms like ExitAdviser to find the perfect buyer for your business.

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