Knowing how much your business is worth can be massively useful information – even if you don’t intend on selling your business. The value of a business is a little trickier to determine than the value of a car, or even the value of a home. Businesses are complicated and nuanced, and not every business of the same size is worth the same amount of money. Business value is best determined on a case by case basis, although there are a few ways you can get a good idea without tearing apart your file cabinets and breaking out a whiteboard.
Research the Market for Similar Businesses
Sometimes, value is relative. The economy surrounding something has a lot to do how much it sells for. Your business could technically be worth a lot more than what it’ll fetch when you put it up for sale, and it’s important to have those figures for the sake of comparison. It’s all about market research.
Say you own a B2B manufacturing business. Look at what similar manufacturing businesses are actually selling for – not what they’re listing at. Anyone can ask for a billion dollars, but that doesn’t mean they’ll ever receive even a fraction of it. Seeing what price range actually brings in the buyers can help you form a realistic expectation of what you’ll get selling your business in the current market. You might even find that it’s worthwhile to wait it out until the market seems to be moving in your favor.
Have a Valuation Done
One of the easiest ways to determine the value of your business is by getting a valuation done. You should probably do this every few years just for good measure, especially to make sure you’re staying on the right track, as Jock Purtle from Digital Exits says. There are a lot of ways to get a valuation on physical businesses, but businesses with powerful websites or strictly web-based businesses would benefit from a specialty valuation. There are companies which offer these kinds of valuations securely online.
This valuation is a great starting point. It’s what your business would be worth in a perfect market, if you have the time and patience to wait for the perfect buyer. Other factors may affect the way you ultimately decide to sell your business, if you do decide to sell it at all. If the value isn’t what you were expecting and you’re willing to hold out, you might want to wait a little while before you make any big moves.
Check Out Your Projections
Growth can never be a guess. If you expect that your profits are going to rise substantially in the coming years, you need to be sure you have the facts and figures to back that up. Look at the growth you’ve experienced over the past few years, and determine how that will correlate to your future. If you’re only getting bigger, it’s easier to ask for an amount closer to the objective value of your business. The proof is in the pudding, and you’ll be feeding your potential buyer a huge spoonful of that pudding when you can demonstrate that you’re handing them an easy profit.
As much as it may hurt to do so, it’s important to remember that the money you’ve invested and the time that you’ve put into your business don’t necessarily translate into what your business is worth. The person buying from you is another businessperson, and they’re going to make decisions based solely on the facts. Don’t take it personally, and be proud of what you’re putting up for sale.