How to value your business

Author: Douglas-Jones Mercer

Date: 12 December 2016

When it comes to selling your business, you can often overestimate its worth. Here is a step-by-step guide to valuing your company that might help you when selling a business.

1. Establish what sets your business apart from others in the same field, whether it’s a stable firm with significant assets or a new business with good prospects.
2. Factor in the skillset and experience of your workforce, especially if employees are committed to the business and have clear employment contracts.
3. The relationships with your clients and suppliers can also add value to the business. If they are willing to continue buying from or supplying to your business after the sale, you can factor this into the price.
4. Explore whether your sector has its own established criteria for valuation.
5. Speak to a financial advisor with sector specific experience; they can help you get an accurate picture based on how the wider sector is performing.
6. Include the value of your physical assets
7. If you are an established firm with a profitable history, you may be able to implement a price earnings ratio
8. Weigh up the costs of setting up a similar business from scratch, this will show potential buyers the money they could save by buying your already established business.
9. Consider valuing your business at a multiple of its earnings, smaller businesses are usually valued at lower multiples than larger companies.
10. Remember your business is only worth what the purchaser is prepared to pay, and most business owners value their businesses too highly.

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