Every business owner I have ever dealt with wants to know the answer to this question. The good news is that now you can finally find out what your business could be worth.
Most times we don’t discover the real value until it comes time to sell the business – and often we realise it is worth much less than we thought it was. This can be a real blow to business owners who rely on the sale of their business as a form of superannuation. Not only can I share with you a guide on how to value your business, simply, you will know what you can introduce or change in your business to increase its value.
Recently a business owner told me that they had tried to sell their business two years ago for $2.0m. The highest offer they received was $1.5m so they decided to take their business off the market. Not so long ago they re-listed the business for sale and the maximum offer they have received so far is $1.2m. The concern now is that, they are wanting to retire soon – the number of years they can run this business is diminishing and their ‘Super’, in the way of net proceeds from the sale, will become less each year.
The value of a business is largely driven by profitability, but more and more in a world of disrupters people are wanting to invest in a business that generates enough cash (different to Profit) and can absorb unexpected shocks. Not only that, you, the current owner, are one of the major reasons the business has been successful to date. A prospective purchaser could be nervous about this and must feel assured they can either repeat your performance or improve on it.
WHAT DRIVES BUSINESS VALUE?
- Generate a solid profit after drawing a salary – this sounds straightforward but net profit forms the basis for how businesses are valued. Don’t get hung up about paying tax in the meantime, there are 20 other expense items to save on and you get to keep 70 cents in every dollar you save, which in turn makes your business worth more money.
- Documented business plan – should include a marketing and operational guide, as well as any relevant industry analysis. Good plans provide greater surety around business performance and continuity.
- Efficient customer relationship management system – creates a seamless experience and less reliance on individuals.
- Retention of key employees – Reward and recognition programs give confidence that you alone are not the reason great employees remain with the business.
- Effective financial management – Accountants or advisors may prepare your information but when financial statements are properly understood, they can be used as powerful management tools. Importantly it’s essential in making sure the business has available cash when needed most.
- Protect intellectual Property – patents, trademarks and other ‘intangible’ assets (you can’t touch them or feel them) can ultimately be worth more than the physical assets of the business.
HOW TO VALUE YOUR BUSINESS
Great news! At Prime Profit System we have a FREE, easy to use valuation calculator and guide. To download your free copy head to https://primeprofitsystem.com/maximise-business-value/
It’s important to understand how valuing a business works. By knowing how it is calculated and what drives value, you can take action by creating strategies that will make your business worth more into the future.