Preparing to sell a business is the most apparent reason why a business owner might need an business valuation. Whether you are attempting to sell or not, understanding the true value of your company can help you to see the progress you have made and make informed decisions about its future. If you are considering a sale of your business, an accurate valuation will help determine if you are ready, and where you can improve before listing. Without one, you may end up selling for much less than your business is worth, or be forced to make big compromises at the negotiating table just make a deal go through.
Consulting with the Right Professionals
Although several professionals can provide you with a business valuation, including real estate agents, investment banking firms and accountants, more goes into valuing a business than just crunching numbers. You need to consult with someone who is a subject matter expert on your business. Business brokers are the most qualified to perform an accurate valuation because they have experience selling businesses and working deals in every industry. Their insight can provide the guidance needed to fix issues that could affect the overall value of the business and increase the value before the sale.
One of the most important value indicators is how well your business stands out from the competition. A competitive advantage, or lack thereof, can have a major impact on the overall value of a company. This can be in the form of a recognizable brand name or unique technology that is difficult to replicate. It is also important to see how your market penetration compares to competitors as well as what similar companies are selling for.
Traditional valuation methods look at revenue, net income and profit, or earnings before interest, taxes, depreciation, and amortization (EBITDA). Business valuations also typically include a five-year growth forecast. This takes into account your company’s objectives, as well as the overall size of the market and your business’s market share. It considers your competitors and how easy or difficult it will be for new competition to enter the market. It also examines how sustainable the growth is, and whether or not the company will need to take on new debt to grow further.
Many necessary components of a business valuation are quantifiable, but other valuable elements are not. A good example of this would be the leadership of your company. Having strong management structure and highly skilled employees will help add value to a business. The dependence of the business on its owner will affect the value. A business’s success should be independent of the owner’s involvement. If the owner needs to be heavily involved for the company to thrive, it’s value will suffer. Other qualitative indicators include intangible assets such as location, goodwill, intellectual property, brand recognition and customer lists, to name a few. While these are not features that can be quantified, the right professional will know how to determine how much value each adds to the business.
Valuations also identify risk factors that can negatively impact the company’s value. The aforementioned issue with owner dependence would be one example of a risk factor. If a disproportionate amount of your business’s revenue is reliant on a small group of customers, it also represents a big risk. Your company needs to be able to survive setbacks and the possibility of losing clients. A lack of liquidity or marketability could represent another risk to potential buyers. Addressing as many potential risks as possible before listing your business for sale will help to attract more buyers and maximize the value of your company.
Choosing the right broker to perform your business valuation makes all the difference. If the valuation is too low, you could be leaving thousands of dollars on the table. If it is too high, buyers may not bother to inquire or look at your company. While business brokers are the best source for obtaining an accurate business valuation, not all deliver the same precision, dedicate enough time, or have the proper experience. Corporate Investment Business Brokers (CIBB) has a track record for accurately valuing businesses of all sizes, from every industry. A very high percentage of the businesses we list for sale sell for at, or very close to asking price. We are experts in the valuation process and can help you to add value to your business and prepare it for its eventual sale once you know what it is truly worth. Contact us to get a free, no obligation business valuation estimate and find out where you stand.
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