Do You Really Know How Much Your Business Is Worth?
Many businesses for sale are listed at highly optimistic asking prices. Most business owners find it hard to be impartial because they have poured a lot of time and energy into the business and they may be relying on selling it to fund their retirement.
It is important for business owners to close the gap between expectation and reality – many business value assessments turn out to be less than expected. This reality check often provides a much needed jolt to business owners to make some needed changes to improve their businesses value.
Some business owners like to look though business classifieds at comparable businesses, but even actual selling prices can be misleading if looking to gauge the worth of your business against it. Sometimes businesses sell for a higher price as the inflated sale was due to a specific buyer wanting that specific business at that time, perhaps due to location or other personal circumstances – so it would be a mistake for a business owner with a similar business to view these as a reliable indicator of what their particular business is worth.
Other business owners look to business brokers to estimate the worth of their business. However, business brokers are not always the best people to rely on to value your business objectively, as they receive a fee for winning your business so the bias will be to over-value it. Seeking the advice of an accountant is a better option as they are able to give you an unbiased valuation by looking at a number of factors including:
- Cash flow and financial management
- Demand for that business
- Demand for that location
- Demand for the industry type
- The goodwill of the business
- Does the business currently derive value for the skills and knowledge of the business owner?
- What is the potential for growth?
- Risk of disruption
- The size of your customer base
- Is the business positioned to access lending?
Fortunately, with a little planning, there are ways you can increase the value of your business. Generally, the longer you have to prepare, the more control you will have over the final value of your business.
As accountants and business advisers we can provide you with an impartial view of your current business value and work with you to increase the value of your business, and help you maximise the after-tax value upon sale. Please contact us to discuss your specific circumstances.