The market can be a fickle thing, and whether you’re currently running a thriving business that you want to make some money on, or you’ve been having a few issues, it’s not necessarily always the right time to sell. Getting out quickly is one thing, when you finally make the decision to let your business go, but getting out at the right time is a much more sensible way to go, so it’s important that you regularly ask “how much is my business worth?” in order to ensure you’re ready to make a move when the time is right. Read on for some tips on how to value your business…
The benefits of being on top of your company value calculation
Any business is an investment, even if you started up with little or no initial capital, and it should be treated as such, ensuring you look to grow your investment’s value in the time that you have it. Being aware of the value of your business during your time in ownership will give you a clear idea whether what you’re doing to grow your investment is working. If an unexpected offer comes in, you run into health issues, or there’s another reason you’re looking to sell your business – perhaps you’ve found the perfect investment but you only have a small window to raise funds, knowing how to value a company and getting a quick and accurate business valuation can help you decide on your next course of action more easily. Similarly, valuing your business regularly, whether you use a professional company offering company valuation services, or use a company valuation calculator you can trust, will give you an idea of when the right time to sell is.
How to value your business
Whether you’re wondering what you’d get for your business as an idle possibility, or you’ve realised that perhaps you’d like to enjoy retirement or move onto other things, it’s essential that you know how to value a business. There is, however, not just the one ‘how to value a business calculator’. There are several methods of working a value out, and here, we briefly look at some of the most common business valuation methods that are used to come up with a figure.
Multiples of Earnings
Businesses with a well-established financial history sometimes use this method, working out a Price/Earnings ratio, based on the value of the business divided by its profits after tax. However, the ratio will differ depending on the industry your business trades in, and an IT firm for example, may command a higher ratio than one such as a high street estate agent.
Discounted Cash flow
Estimating the cash flow of a business over a certain period of time can also be used as a business valuation method. However, this is not the only value used. The final figure is worked out as the terminal value of the business after the period mentioned above, plus the cash flow is then discounted. This method is normally used for online businesses, and those with few assets but much potential.
If a business were to have a glut of tangible assets, such as properties or vehicles, then asset valuation may be used. The net realisable value of all of the properties or vehicles would be used as the valuation for the business.
This is a fairly simple way to value a business, as it works on the premise of working out how much it would cost to set up a similar start up. Included within the costings would be gaining a customer base, developing services or products, training and recruitment and purchasing any assets required.
If you’re struggling with working out your business value, there are businesses that can help you calculate the value of your business, but do consider running these figures regularly, as keeping on top of your business’ value can give you a great way of working out the best time to sell.