When it comes to selling your business, the most important question one needs to ask is: How much is my business worth? The concept that a business is worth whatever someone is willing to pay for it is commonly held, but is also naïve.
There is no precise way to value a private business. The seller wants maximum return and the buyer wants to drive the price down to maximize the return on investment. There truly are many measurable ways to value certain parts of the business with items such as inventory, fixed assets (land, building, machinery/equipment, etc.) and reputation of the company. In most cases, it will come down to how keen the buyer is to acquire the business and how good the seller is in marketing the intangibles. The complexity of the process requires a holistic approach. Traditionally, banks have embraced the philosophy "that cash flow and client base have no value because the customer base can evaporate and they aren’t required to do business with you". However, businesses that are expanding with increasing revenues, cash flow and possess significant client lists are valuable to potential buyers and must be considered in the valuation.
To read the remainder of the article, click here.
There is no precise way to value a private business. The seller wants maximum return and the buyer wants to drive the price down to maximize the return on investment. There truly are many measurable ways to value certain parts of the business with items such as inventory, fixed assets (land, building, machinery/equipment, etc.) and reputation of the company. In most cases, it will come down to how keen the buyer is to acquire the business and how good the seller is in marketing the intangibles. The complexity of the process requires a holistic approach. Traditionally, banks have embraced the philosophy "that cash flow and client base have no value because the customer base can evaporate and they aren’t required to do business with you". However, businesses that are expanding with increasing revenues, cash flow and possess significant client lists are valuable to potential buyers and must be considered in the valuation.
To read the remainder of the article, click here.
