Pricing a business is more of an art than science. Sellers that happen to look at the big picture like the deal structure and pricing, are usually more successful in selling their business. One of the reasons, business valuation is such a complicated issue is because there is no standard methodology available to value small businesses for sale.
The actual value of your business is the amount someone is willing to pay for it in the business-for-sale marketplace. Personal feelings about your company's worth are far less important than accurate documentation and other factors that could potentially influence value. It is important for sellers to recognize that the principal reason buyers purchase is for a Return on Investment (ROI). All buyers are ultimately seeking to profit from their purchase by getting a suitable ROI so it is very critical for a seller to have a successful exit plan thought out from the point of view of the buyer.
Influencing factors of Business Valuation
- Maintenance of clean financial books and records
- Historical, current, and projected profits and cash flow.
- Need for capital expenditure in the near future.
- Goodwill and Intellectual Property such as Patents.
- Strength of customer relationships and how profitable they are.
3. External Factors
- How similar businesses are being valued.
- Industry growth prospective and competitive environment.
- How many potential purchasers are interested in the business.
- How many similar businesses in your sector are on the market.
4. Assets and Liabilities
- Value of assets such as property, equipment, debtors, and stock-in-hand.
- How full your order book is.
- Level of debt and other existing liabilities.
- The Management's record of success.
- How dependent the business is on seller and their own skills and the extent of your future involvement.
- Experience and commitment of key staff.