Selling a business is a very exciting time for any entrepreneur that has always hoped for a day when they would be able to cash in all their hard work. Owners are looking to sell their businesses every day and although some of them leave their businesses behind with a great amount of money, others will fail to sell due to the inaccurate evaluation of their business. While selling your business could be a very profitable and excellent thing to do, you must understand the best ways to properly value your business or else you might be leaving money behind that you deserve.
Getting the right value of a business is subjective on how much someone is willing to pay for it and how much you’re willing to let it go for. The younger the business, the harder it can be to correctly price how much your business is worth.
This approach is going the be the easiest and most effective to increase the amount of money you should be asking for your company. You will be able to price all of your assets and then just add them up for a concrete total to show to your potential buyers. To start, make sure you account for any physical assets such as machinery, any furniture, inventory, computers, prototypes your company has made, and any other type of assets your company owns that you could add onto the price. Usually young businesses won’t have much in physical assets but might have some great potential in the intellectual property section.
Intellectual property is going to be the next part of asset evaluation due to the fact that they can be considered property of your company. Things that can be considered intellectual property are patents, incorporation papers, and trademarks. While this can be a very profitable approach, the amount that these assets are worth can be pretty subjective. It all depends on how much your potential buyers are willing to pay for it, and how much money you expect these assets should bring the company. A great way to try and price them is to find similar products and services and research as much as you can about them. This will give you a much better idea of what to expect, and you can also use them to prove to your buyers they are worth the money you are asking for.
The last main section of asset evaluation is going to be about employees, customer contracts, as well as principals. A main portion of a company’s value can come from the people that run it and the current loyal customer base. Companies that have excellent designers, programmers, and any other essential workers can dramatically increase their worth if they can prove the company will thrive with these specific employees. It can be very hard to put a price on exactly how much an employee or a customer is worth, but it can be necessary to evaluate each and every one.
The Market Approach
If you choose to use this approach, you will be estimating your business’s worth based on the theoretical demand of the current market. You will need to start by estimating the current size of your company and its potential growth based off of previous statistics. The larger the market, the bigger growth projections can be shown, which then increases the amount of money you can ask for when you sell your business. It can be quite hard to use this approach when a business is still fresh and doesn’t have a established customer base, but on the flip side, if the company can prove its growth potential, then the asking price can be quite substantial. There are many aspects to this approach that you must look at such as competitors, location, customer contracts, and the marketing efforts that have already been implemented into the business’s strategy.
The Income Evaluation Approach
This approach is usually done by financial analysts that will project a company’s future potential cash flow and then discount them at a certain rate. This approach is very hard on newer businesses because the discounts can be a very high percentage, usually from 30 percent to 60 percent. The newer the business, the more uncertainty of its growth potential, which then increases the discount percentage. There are many aspects analysts will look at when using this approach, such as earnings, taxes, depreciation and amortization, and multiplying those numbers by an understandable factor.
It isn’t an easy task to fully evaluate your business, but in the end, it will be worth it to make sure you get exactly what you deserve for the business you built. There are other variations of evaluating you business, such as including parts of each approach to attract potential buyers, but in the end, the more time you put into getting the right value for your business, the more satisfied you will be with the sale.
Jock writes for www.brokercorp.com. They help you sell your internet business.