7 Important Steps When Valuing Your Business

Last Updated on: 11th June 2024, 03:52 pm

The key to a successful business sale is valuing your business Goldilocks style – getting it just right. If you price it too high, you won’t attract buyers. Price it too low, and you’re missing out on crucial revenue.

Before you list your business for sale, you’ll need to come up with a figure that accurately reflects its value. Using an online tool to value your business, as well as our seven top tips, you can avoid being one of the 98% of business owners who don’t know how much their business is worth.

  1. Gather the necessary data

Anything that proves the previous profitability of your business or pertains to its future should be gathered as data for prospective buyers. This includes contracts, financial records, lease agreements, loan details, supplier agreements, and other paperwork that would impact the business’s future.

Having all this data in one place will allow you to assess your business’s position as accurately as possible. Plus, you’ll have it all ready when a prospective buyer asks to see it. 

  • Take stock of your assets

Your business assets are anything that adds value to your business and will benefit a potential buyer. To help you reach an accurate figure, make a list of the property and resources that make up your business, including intellectual property, cash, employees, and physical assets. 

  • Analyse past performance

One of the biggest indicators of future success is how successful the business has previously been. Identify the financial history and ownership structure of the business, comparing it to businesses of a similar size or age. Prospective buyers want proof of past success to reduce risk levels.

  • Consider the future outlook

In the eyes of a buyer, the business’s value lies in its future profitability. Use your knowledge of its financial history to forecast its future, including details or updates that might improve future profitability. If you’re selling a coffee shop and a new housing estate is about to be built just around the corner, for example, this boosts the firm’s future outlook with the prospect of a new group of local clients. 

  • Determine the right valuation method

There’s not a one-size-fits-all method of valuing your company – there are multiple. Discounted cash flows is a popular method, but market capitalisation is typically simpler. Some business owners prefer to go off book value, but this method is a little unreliable and doesn’t always accurately reflect the contextual value of a business. 

A trustworthy business valuation guide can help you establish the right method for your business – alternatively, combine a few for a more accurate figure. 

  • Consider values that can’t be ‘measured’

Not everything about a business is easily quantified numerically, and you’ll need to take this into account for the valuation. Things like location, regular customer base, and established relationships with suppliers can positively impact your business’s value, even if they’re not easy to pin down on a spreadsheet, so don’t skip on these details in your valuation. 

  • Conduct market research

The value of your business is contextual – the state of the market matters. If you’re in an upmarket neighbourhood or the demand for businesses is increasing, the value of your company will change accordingly. For an accurate figure, look at what other businesses of a similar size and sector in your area have recently sold for and take this into account when pricing yours. Price your business competitively without selling for less than it’s worth.  

In short, the more prepared you are for the sale of your business and the more time you put into an accurate valuation, the better price you’ll get when the moment comes. No two businesses are the same, so gather as much data as possible to establish what makes yours so unique. 

With the help of an in-depth business valuation guide, you can have your business on the market for a price that truly reflects its value.

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