Prior to selling your business, it is a good idea to familiarise yourself with how to value a business. 5 tips have been listed to help you make an informed and optimal sale:

1. Gather Information

Primarily, there are a few components your valuer will require, so it is important to have all this information on hand. This may include:

  • Financial statements (minimum of five years previous)
  • Ability to schedule a site visit to allow for the evaluation of assets and operations
  • Information regarding intangible assets (Intellectual property, brand recognition, trademarks, etc.)

2. Understand What Affects a Business’s Viability

Circumstance of Sale:

Motive for selling can have an impact on the value of your business. If it is a forced sale, this will decrease business value due to time and situational restraints. However, if you are willing to wait and watch market trends, there is opportunity to reap a higher sale price.

Years of Operation:

This is a relevant factor in deciding a business’s value as it gives an indication of business stability, loyalty of consumer base, experience in the industry and cash flow.

Tangible & Intangible Assets:

During the sales process, it is advantageous to promote any tangible and intangible assets which the business owns (to be sold with the business). These include:

  • Current/short-term assets
  • Non-current/fixed assets
  • Intangible assets

For tangible assets such as property or equipment, it is relatively easy to estimate a re-sale value. However, for intangible assets this becomes more of a challenge, thus the need to ask for guidance from a valuer or financial advisor.

3. Use a Business Broker

It is a good idea to contact a business broker or valuer to assess your business. Not only will this give you the best chance of getting a higher price on your sale, but will accelerate the process. Often, these brokers have access to information regarding market prices for businesses similar to yours. As a result, this gives initial guidance and a ball-park figure for what your business is possibly worth.

4. Be Mindful of External Impacts

Ultimately, your business is only worth what buyers are willing to pay. If there is a desperate need to quickly sell your business, there is no option to watch market trends hoping for a better price. Especially in the midst of the COVID-19 Pandemic, the industry has taken a hit. This would mean there is little affordance to be inflexible with pricing. Therefore, this is why negotiation and tactical valuation is important.

5. Select a Method to Value a Business

It is worth while having a look at what similar businesses have sold for (your broker can help you with this). In selecting a valuation method for your business, there are many paths to go down. The 2 most frequent routes taken are:

  • Valuation based on Net Worth (Assets – liabilities)
  • Valuation based on profit and expected ROI (Return on investment)

If this is overwhelming or hard to understand, financial business advisors are experts in helping you to reach your sale goals, completing hard-to-understand contracts and managing compliance of legal matters.

Next Steps…

Here at BUSINESSNAV, we are committed to helping you navigate through the business valuation and sales process seamlessly. If you are interested in capitalising on this expert advise, click here!