How to value your business
April 21, 2010
Several factors determine the value of your business – some obvious, others less so. On the financial side there are profits and cashflows as well as any capital spending that is needed. Market dynamics are important, too, for instance how other businesses in your sector are being valued; how much interest your business generates among potential buyers; and the number of comparable companies on the market. Assets and liabilities are another key consideration, for example, how the value of your assets (plant and equipment, debtors and stock-in-hand etc) compare with your debts. Intangibles such as goodwill and intellectual property (including patents) will play a pivotal role, as will the strengths of your relationships with customers and your prospects for growth. Business values are dependent on the extent to which the business relies on your own abilities and relationships, as well as those of your management team and employees.
Common ways of calculating the value of a business are multiples of future earnings and the capitalisation of future cashflows. Ultimately, however, the value of any business is what the market will support and the role of negotiations is crucial to maximising value.