How to value a business – when selling a company

8 key steps to valuing your business – when selling a company.

Vendors and purchasers will often go through a very different through process when considering value.

There is no standard model of valuation. The traditional methods of profit multiples, asset value and discounted cash flow all their place but the market value arrived at by using these tools is often very different to the view taken by a purchaser.

Here’s eight key areas to take into consideration:

Past Performance

Any buyer will want to look at how your business has performed in the past so they can make a judgement on how it may perform in the future.

Time

Has the business been around a long time? Does it have longevity? A company that’s been around for many years isn’t necessarily one that will continue to grow, however if it’s survived recessions in the past then this may be an indicator of its general strength and resilience.

Customer base

Does the company your selling have a loyal customer base that keeps buying? Will they stick around when the business is sold?

Balance sheet (liabilities and assets)

The accountant will want to make sure the balance sheet is in good order. Companies can look good on the surface but due to due diligence should be carried out to ensure it’s working well under the hood.

Profitability

Is the company profitable? A company can have a great turnover but if they’re not turning sales into profit, are they worth asking price?

Competition (and market share)

Are you buying the market leader? If the company is at the top in its particular market then it could be worth more.

The Sector

Is the sector on the rise or on the wane? Technology changes rapidly, is this company’s products likely to be made obsolete in the next decade – or sooner?

Management

Are the current management the backbone of the company? Are they likely to take a lot of people with them when they leave? This could be critical to the company’s on-going success.


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