Business valuation, from a business-owners perspective, is an emotional subject. It’s easy to Google the concept of valuing a business and often you can get a rough idea of your value using a basic industry standard formula.
Most of these relate to open market sales for listed companies where publicly available data is used. The reality is that these methods cannot give an accurate value in many cases for privately held companies.
In conversations with business owners looking to sell, I always ask “Do you know what it’s worth today?” The most common answer is to a completely different question, which is “I’m not selling for less than £x million”. With no idea what their business is worth in the market, it is common for owners (especially founders) to apply a rule of sacrifice value i.e., how much of myself, my time and sacrifice have I put into this business?
The bad news is buyers don’t care about any of that. They only care about their return on investment and their attitude towards risk.
A professional valuation before you go to market is essential so that you can have a realistic idea of where bids are likely to come in. It helps you manage your expectations in the process. If you think your business is worth £20m but all the evidence points toward a £2m valuation, there is going to be a lot of wasted time and money trying to find a buyer that pays the expected price.
A valuation starts with your year-end numbers.
Those alone will not get your business sold.
With business value expectation gaps you’d be better spending your time and effort getting help with how to grow it to match your financial needs. You can’t decide when to sell unless you know the value of your business today. Equally you can’t focus on the right value building activity if you don’t know what impact it has.
When a buyer is valuing your company, they look at every aspect of your business including an assessment of:
- Business operations
- Financial reporting
- Your role in the business
- Customer concentration
- The team
- Risks inherent in your business and industry
- How you perform against your competitors
Hundreds of other criteria are reviewed depending on what they are looking to achieve in the acquisition of your entity.
“Visibility without value is vanity.”
Bernard Kelvin Clive
Are you ready to get your business valued or are you ready to sell? Click here to contact Christine by email alternatively you can book a call with the Business Mentor of the Year 2020, author and speaker. Who helps business founders get their businesses exit ready so they can enjoy a happier, richer future. She saves them THOUSANDS and increases the value of their businesses by MILLIONS.
