Selling your business can be an exciting, but sometimes daunting, prospect. It’s key that you have a full understanding of the selling process before making any final decisions. This includes getting a valuation for your business, so that you can see the full picture of what your business is worth, before selling your business to the next buyer.
No matter how big or small your business is, getting a valuation is an important part of arriving at a fair price when it comes to selling. At Bizdaq, we can offer you a helpful valuation service to make sure you have a clear picture. We can help clear up any lingering queries on how to value a business to sell it.
Many business owners will frequently ask themselves, ‘should I sell my business?’, which can be a difficult decision to come to. Whether you’re familiar with the financial situation of your business or not, we can help you decide if you want to sell and how much to sell your business for with a few simple steps.
You may also be wondering ‘how much does it cost to sell a business?’, which is another great question and is dependent on the individual sale and the business’s valuation. Read on to find out more…
Why Do You Need to Value Your Business?
Any industry can be volatile and it can affect your profits and losses at any given moment. Having an up-to-date valuation of your business can ensure you have a clear picture of where your business is at within the market.
Many small business owners ask us ‘can you sell a business that is not profitable?’, and the answer is of course ‘yes!’, but this requires an accurate valuation.
A valuation of your business can provide you with helpful information on what your business is actually worth. This is interesting both for yourself as the business owner, but also for potential buyers if you decide to sell.
However, there are also many different reasons why you might need to value your business besides selling. A valuation can help for investment purposes; perhaps you need a price to issue new shares. A valuation may also help to highlight under-performing and satisfactory areas of your business.
The trouble is that valuing your business doesn’t always seem quite so straightforward. With Bizdaq, our experts can give you some guidance and ensure you understand the various techniques that can be used if you’re thinking of selling your business.
How to Value Your Business
There are a few different methods used to achieve a valuation of your business. How to value a business to sell it is a particular art and the following methods are great ways to achieve a successful business sale.
At Bizdaq, we have our own algorithm that can analyse various data points from different sources; including real sales in your market and area. The Bizdaq valuation calculator works by taking key financial details, before applying the relevant multiplier for your sector and factors in recent sales of similar businesses. This will provide you with a fair and accurate estimate of your business’ value.
However, it also lets you know exactly what your business is worth in the current market; invaluable information if you are hoping to sell your business.
Some alternative methods can be used to value your business too.
Multiple of Profits
This method of valuing your business is based on the profitability of the business in the coming years. This is a popular method because most buyers will want to make a return on their investment quickly, and this will give them a clearer idea of how possible that is.
Multiple profits work by multiplying your business’ annual adjusted net profit by a profit multiplier, based on your industry. This is one of the more commonly used methods because it projects business success; if it’s a positive outcome, you have a much better chance of selling your business!
An asset-based valuation is a simpler method. This method looks at the total value of the business’ assets, minus any liabilities. This method ignores any income and is more commonly used when a business has high-value assets such as property.
The third valuation method is known as entry valuation. This method takes into account the cost of setting up a similar business from scratch. It is a helpful method mostly for buyers, as it will help them weigh up the pros and cons of buying your business or simply setting up their own.
From a seller’s perspective, the entry valuation method can highlight what makes your business unique within your industry.
How a Valuation Will Help to Sell Your Business
By getting a valuation of your business, you will have a good idea of what your business is worth. Ultimately, this means you can ensure you don’t sell yourself short. After all, you will be likely looking for a profit out of the sale.
A valuation can also help to highlight areas where you could improve the value of your business before you sell. This can make your business more appealing to buyers, and have a better chance of a successful sale.
An accurate value is also encouraging to buyers, as they can feel confident with the business’ position, and you may find the sale negotiations are much more favourable.
And that’s about it! We hope you have now learnt how to calculate the selling price of a small business.
So, if you’re hoping to sell your business and need a valuation to get started, get in touch with us today!