Here are 6 steps to determine your business valuation:
1. Go over your financial statements.
Review your financials, including your sales and profit history to ensure that your business is in sound financial condition, with its assets exceeding its liabilities. Ideally, you will have at least 3 years of financial records, displaying consistency in keeping profits ahead of your operating expenses.
2. Determine the uniqueness of your business.
Review the products and/or services that your business provides. Buyers are attracted to a business that is unique and stands out above its competition. Features like a proprietary process that set the business apart from the crowd make it more saleable.
Potential buyers seek a clean transition, so, for example up-to-date operation manuals that make your production process easy to transfer to a new owner, would be seen as an asset.
Other facets of your business worth considering are its brand and reputation. Assets in this area include being well known and respected in your market, having a recognizable trademark and domain name, a strong online and social media presence, or an effective marketing program.
3. Consider the physical aspects of your business.
Location also influences your business sales potential. A growing population of customers, assuming that your business is not solely conducted online, in a location with geographic and demographic stability, can be positive points when it comes time to sell your business.
In addition, the image that you present to potential buyers, including the facilities and equipment that your business relies upon should be up-to-date and running smoothly. Buyers will also feel more secure knowing that any leases are long-term and transferable.
4. Consider the value of your staff and clientele.
If you’re considering selling your business, you’ll want to factor in your staff and clientele. A well-known and trusted staff with contracts that easily transition to a new owner, as well as clear staffing policies outlined in an employment policy manual make a business worth more to buyers. Dependable staff and management can go a long way in smoothing the transition for a new owner.
Having a growing customer base or a large roster of loyal clients, especially major clients with long-term contracts is an asset to any business. Maintaining a customer database that can be transferred to a new owner will help smooth the transition and make your business more appealing to potential buyers.
5. Identify areas of your business that need improvement.
After assessing the condition of your business, determine which areas could be improved upon in order to make it more marketable. Create a list of specific improvements to be made for each area of weakness. Next, determine how long each will take to implement and create a timeline within which those changes can take place.
6. Decide whether to sell now, sell later or liquidate.
Now that you’ve established your business’s worth and sale potential, and have created a plan of action and timeline for improving your selling prospects, you have the tools to make an informed decision on how to proceed.
Depending on the current condition of your business and your willingness to spend the time and effort to improve it, you have choices to consider:
- Ideally, you’ve found that your business is in great shape and ready for sale, and you may proceed to set an asking price and to list it confident in its salability.
- You may find that your business needs improvement before it can be placed on the market and receive a competitive asking price, but decide to sell it as. You decide this knowing that your selling price might be lower than if you were to make improvements.
- Or, you may follow through with the plan of action that you’ve created, which will delay selling your business in exchange for more potential buyers and the likelihood of a higher sales price.
- Lastly, you may decide that the condition of your business makes it uncompetitive in the sales market and not worth the effort to improve, opting to liquidate your assets instead