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Determining the Selling Price for your Business
Pricing and Valuing a Business

Value your Business

Selling a business has two crucial elements: finding potential buyers and negotiating a price. It's essential to make an estimate of value at an early stage so that you are clear about the value you can expect to realise and the most appropriate methods to manage the sale.

This guide explains the key factors affecting the value of your business, and the different ways a value can be calculated.


Key factors affecting the value of your business

There's a range of key factors that can affect the value of your business.

Finance

  • Current, recent and projected profits and cashflow.
  • How well you control costs. 

External factors

  • State of the economy in general and your market in particular.
  • How high similar businesses are being valued.
  • How many potential purchasers are interested in the business.

Intangibles

  • Goodwill and intellectual property such as patents.
  • Strength of customer relationships - and how profitable they are.
  • Your business' growth potential.

Assets and liabilities

  • Value of assets such as property, equipment and stock-in-hand.
  • How full your order book is.
  • Level of debt and other existing liabilities.
     

People

  • The management's record of success.
  • How dependent the business is on your own skills - and the likely extent of your future involvement.
  • Experience and commitment of key staff.

While some of these factors are outside your control, you can take steps to make your business as valuable as possible. You need to start planning well in advance. For more information, see our guide on preparing to sell your business.

But it's important to remember that any valuation you and your advisers come up with is subjective. Business owners often place too high a value on their business. In the end, the value of your business is only as much as a purchaser is prepared to offer. All Offers are negotiable.

 

Common methods of valuing a business

There's a range of ways to value a business. Valuations based on multiples of future earnings and the capitalisation of future cashflows are the most common.

A potential buyer may use more than one method to get a range of values for your business. In the end, however, any price will be a matter for negotiation.

The best person to speak to you is a Business Broker who is quite familar with the Market Value of your business.  Be careful using accountants and other financial people to value a business.  These professsional use industry formula based on theory.  The market is a cruel master and price flucuate wildly based on a myriad of reasons.