It is as if the value of a business is the worlds biggest kept secret. Business owners can spend all their business life (in many cases decades) and not really know the real value of their business. By real value I don’t mean book value, but how much would somebody pay to own it.
Often, the owner has a overly optimistic value of what the business could sell for due to anecdotal and inaccurate information they have heard from colleges and acquaintances, mostly not first hand but from somebody who has heard of someone who has sold a business. It is more rumour than the real information.
Another way that business owners guess the value of their business is by looking for businesses advertised in daily papers and on the Internet, searching for a business that is similar in size and in the same industry and then comparing those businesses with their own.
There are two reasons why this method wont give you a good indication of your business value. The first is there are no two businesses alike. They all rely differently on their owners, have different customers and different risks associated with them, so you’re not comparing apples with apples. The second reason is that businesses often sell for a price quite different from the one they are being advertised for or don’t sell at all.
So, how do you then gauge how much your business is worth at any given time of its life?
Like this: First, detach yourself emotionally from the business then ask yourself the following question: ”Knowing what I know now, about my business, its profits, advantages and disadvantages, all its benefits and drawbacks, comparing it to other businesses and investment opportunities that I could invest my money in, how much would I pay for it?”
If you answer this question without emotional attachment and honestly, you will find the answer to the biggest mystery for any business owner… the answer to real value of your business.
Whilst Google is a good source of information, it’s best to get in touch with your local business broker who will be able to assist you with working out the true value of your business, and if they’re like us, they will be able to provide you with a Free Business Appraisal to get you started.
Want to know more about selling your business? Get in touch with your Chan & Naylor office or business accountants to to get connected to Xcllusive and speak to an expert consultant.
Disclaimer: Chan & Naylor take no responsibility for the accuracy of any research material of contributors to our newsletter. Contributions to our newsletter is meant to be educational only and Chan & Naylor does not endorse any promotional material promoted in their articles. Readers should do their own research to determine the accuracy of their material.