Once the decision to sell your business has been made, the next crucial step is determining its value. While there are various methods for doing so, it is important to note that it is not an exact science. Therefore, it is vital to seek the assistance of a trained Certified Business Intermediary (CBI) who can accurately assess the value of your business.
However, it is important to have realistic expectations when working with a CBI. Their role is to provide honest and straightforward advice to ensure the smoothest and most profitable outcome for you. This may sometimes involve hearing some hard truths. For example, you may discover that current market conditions dictate that your business is not worth as much as you had initially thought.
Regardless of the determined value of your business, an established broker, like John Geiwitz, The Jacksonville Business Broker, can assist you in identifying ways to enhance your business to expedite its sale. He can also provide realistic guidance and insights into the sales process. It is important to remember that the number provided by a CBI may not always align with your desired outcome.
How do CBI’s typically assess the value of your business? Let’s explore the top methods they rely on to determine its worth.
- Comparing similar businesses in your category and focusing on the business’s specific industry and how it values companies—a market approach.
- Projecting the future earnings of your business and calculating the present value of those earnings or applying a capitalization rate—an income approach
- Calculating the business’s net asset value—an asset approach
Understanding valuation factors
Not everyone possesses a thorough understanding of the language used in the valuation process of a business. However, familiarizing yourself with some fundamental terminology can greatly assist you when determining the value of your business.
Let’s start with tangible assets, which encompass physical entities like inventory, real estate, manufacturing equipment, machinery, and office furniture. On the other hand, intangible assets comprise of patents, copyrights, franchise rights, goodwill, trademarks, trade names, and digital assets such as software—essentially, things that lack physical substance. If you haven’t done a business “check-up” in a while, now is a great time to take stock of your business performance!
Next, let’s delve into liabilities. These are the obligations your company incurs, such as payments to suppliers, salaries and wages, payroll taxes, and loans. Financial metrics, including profits, revenue, expenses, and other outcomes, serve as measures of a business’s health and performance.
Lastly, business owners must recognize that not all trends are solely tied to profitability. Factors such as inflation, recession, capital availability, and even the current state of supply and demand within the larger macroeconomic landscape can influence the valuation of your business.
By considering these factors and gaining a comprehensive understanding of business evaluation, you can better navigate the process of determining the true value of your enterprise.
Even if you aren’t ready to sell, there are many advantages to knowing the true value of your company.
- Helps you plan for retirement and your exit strategy of how to leave your business.
- Offers insight into how to improve your company
- Guides you to the best options if you are seeking additional funding
The Jacksonville Business Broker has extensive experience in selling businesses similar to yours. John’s expertise allows him to provide skills to accurately value your business. With a track record of over 18 years of successful business sales and M&A experience he is well-equipped to guide you through this process. To get started, schedule a free consultation today and let us assist you in achieving your goals.
