What Is My Business Worth

 

Let’s talk about the sale price! In the end, this is one of the most “top of mind” questions for a seller.

 

So, How much is your Business worth? And how would you work it out?

We prepare valuations and appraise hundreds of businesses every year in preparation for sale.  Unsurprisingly, we speak to many owners who have no idea what their business is worth - do you? Over-valuing or even worse, under-valuing your business can have a negative impact when selling.

 

What happens if my business is priced too high?

A business appraisal or valuation that is too high turns buyers away.  Remember, most buyers that are ready to buy are educated about the market.  Typically, they have been looking at businesses for at least 12 months.

In most cases the buyer will have undertaken extensive research and have a solid understanding of your industry, financial performance of the business, and both current and future market conditions.

They are able to identify and are ready to buy, a business priced at fair market value. Fair market value is where a buyer can walk away comfortable that they have achieved a fair deal (in their mind). They have justified the value or price by researching the information available and comparing it to other opportunities in the market. 

 

What happens if my business is priced too low?

A business valuation that is too low also turns buyers away and it may mean that you as the seller are leaving money on the table unnecessarily. No one wants to do that!

Imagine selling your business to then discover that a similar business had sold for a much better price.

Buyers may become suspicious that there might be something wrong.  They may start to question if there is something wrong with the company, and ask questions like; Is the industry declining? Is a new competitor about to enter the market? Is the seller going to open up in competition?  Is one of the business assets in disrepair?  A low asking price can turn buyers away just as quickly as a high one!

So, businesses need to be priced with a value that is just right - the sweet spot where both the buyer and seller feel like they are paying and receiving fair market value for the business.  

 

How do we get the balance right?

A deep dive into the business is required. A business broker needs to understand these 4 critical components:

  •  the businesses financial information
  •  the industry in which the business operates
  •  current market and economic conditions
  •  the business owners motivation to sell

 

Who determines the value of your company?

Just remember buyers do not determine value on their own, they use expert advisors to assist, accountants, lawyers, industry experts and sometimes even friends to arrive at what they think a company is worth.

And don’t forget the banks, and their credit departments, they will analyse the business taking into account financial information, industry analysis, market economic forecasts and they may even have valuations prepared on a key company assets.

 

How do we get the balance right and who should you consult with?

Ascertaining a businesses valuation can be tricky.

Your accountant can assist you with advice on pricing, but how many businesses are they selling a year? Most would be involved in providing information for less than 5 business clients, and even then they may not understand the unique circumstances of a valuation for a business in your industry or have an understanding of the current market conditions.

You need help from an experienced business broker that sells businesses full time and has their finger on the pulse.

Buyers are looking for profits or opportunities to build wealth, so most small businesses are valued accordingly, using a simple Return on Investment formula.

As your business grows in size, positions itself in a unique industry or has substantial capital investment, the valuation methodology may change, so it is critical to have an expert provide their opinion.

Just remember that in the end, the marketplace will dictate your final selling price but an experienced business broker can assist achieve a better result for you.

We can provide you with feedback on the potential market value of your business. Where we believe your business should be priced, a value that is realistic and achievable in today’s market conditions.  This will get you thinking about the sale price that is right for you.

 

So, in summary:

  1. Your business needs to be priced realistically for sale, not too high and not too low
  2. Consult with an expert who understands your business, industry and the current market conditions
  3. The marketplace will dictate your final selling price or value

 

For more information please contact us today