What is my business WORTH in today’s market?
Every business has a value. This sounds easy enough to understand but what that value is for your particular business is probably a little bit harder to determine.
As a rule of thumb you could say that a small business, earning the owner under $80,000 to $100,000 per annum is worth 1 years owners income plus the value of the assets within the business + stock. There are certainly exceptions to this rule of thumb! High stock levels (retail) or lots of assets in a business (gym equipment) may stop anyone from making an offer. You would have to understand that, most of the purchasers for these kinds of businesses are buying a job because they either don’t like to work for a boss or they can’t find a suitable job. This will influence the finance they have available.
Businesses with much higher profits need to be assessed on a case by case basis. Often the value depends on the time an owner spend in the business, number of staff, location, contracts in place and the actual industry it is operating in.
Some industries have different methods of calculating a rough guide to value; for example a small dairy could be calculated on a weekly turnover basis. A multiple of between 8 and 12 is applied, depending on location and some other outside factors.
Buyers for Property Management companies are willing to pay anything between 2 and 3.5 times the annual turnover. Again, the multiple depends on the region, the size of the database and how solid the contracts are with the landlords.
These are just a few examples and we can advise you on your particular business to see what we think your business would be worth in an open market in these economic conditions.
A couple of pointers to maximise the value of your business;
- Ensure the business is not dependable on YOU personally!
- Get your supply contracts in writing
- Where appropriate; get written contracts with large clients
- Hire good staff that are knowledgeable and add value to your business
- Keep clean records and accounts.
- Use an accounting system; Xero or MYOB are perfect for most businesses
- Pay yourself a salary and stop taking drawings out of your business
- Keep an eye on old stock; sell it!
- Use a CRM system to keep in contact with customers, it is valuable!
However I look at it, if your business makes money, there is a buyer for every business. Finding that person can be a lot harder. That is where we come in…
The easiest answer to the original question is that your business is worth what anyone is prepared to pay for your business. Telling a good story might not increase that value and simply grabbing a number that sounds nice is not the best idea.
You don’t just sell the business to that one person that wants to buy it; the wife/ husband needs to agree, the accountant and lawyer will have their opinion about the value and (most likely) the bank has a role to play in the supply of money to purchase the business. All and all the balance needs to be right from the start. You often only have one shot at selling your business,, we can help with that process!
To get you on your way and see how much your business is worth, have a look at the Business Appraisal tool on the LINK website.
FREE LINK Northland downloads:
FREE Booklet outlining the sales process: Managing The Sale of Your Business
FREE Booklet outlining other options to an Exit Strategy