Business For Sale- Business Valuation

When selling your business it is important to define what you want out of the sale. Why are you selling? This will help determine the best valuation possible.

There is no fixed way to decide on a price. While arriving at a figure, take into consideration:

- the value of your assets
- the goodwill of a satisfied client base
- the net income of your business
- your company’s potential for future income and growth
- what other similar businesses have sold for

Don’t let your emotional attachment to the company be a factor while deciding on the price; the buyer cannot be expected to care whether success fell into your lap or whether you went without sleep for a year to bring your business to life.

There is really no fixed way to value your business, and there are problems with methods that rely on the above factors. For instance, calculations based on asset value can result in a high price for a company that has offices full of computers and furniture, but that shows very little profit.

Similarly, taking the company’s potential for growth as a major factor in your calculations would mean relying too heavily on predictions about the future.

Whatever method you do use to value your company, prospective buyers may bring up these various points (i.e. the value of your assets, your net income etc.) during negotiations so it is a good idea to be aware of them anyway.

If you plan to pay off your company’s loans while selling it, then the interest on those loans can also be added as a factor to the value, since you will not be passing them onto your buyer as expenses.

While assessing the value of your company, you are entitled to add back expenses that your buyer may choose not to incur.

Perhaps while conducting business you’ve been billing first class air travel, five-star accommodation and expensive entertainment to your company, and thus saving on tax.

It is for your buyer to decide how he or she prefers to conduct business; their style may not involve as much travel or entertainment. Since these are expenses that are at your buyer’s discretion, you can legitimately add them back to the value of your company. With Vested Business Brokers expertise you can be sure to get yourself a fair valuation.