Building a business takes a significant investment of your time, energy, and passion to be successful. If you have planned your company well and had a bit of luck in the market, your company will reap monetary benefits that will sustain you for both the present and the future – until you decide to cash out and sell your business.
Selling your company is often a very hard decision to make for business owners, given the understandable attachment many feel for the company they grew from the beginning, but it can be an opportunity for you to garner the most benefits from your company when you need them and allow you to begin your next personal or professional endeavor.
Before you can seriously consider selling your company, however, you must have a realistic idea of the combined value of your business’ combined investments, assets, and future worth so that you make sure you are getting a fair price for all your hard work.
You can get an initial idea of your company’s worth through tools like business valuation calculators, but the best way to receive an objective business appraisal before you decide to sell is by consulting a professional business valuer or appraiser who can use one or several different business valuation methods to guarantee that you get a good price for your company:
Asset-based approaches are most companies’ first step in business appraisal, usually falling into one of two categories.
The going concern asset-based approach or book value approach calculates a company’s value by simply looking at its stated assets and subtracting the value of its liabilities according to the business net balance sheet.
This method often undervalues a business because it uses values according to the balance sheet, which logs amounts based on historical values and not current market prices. This approach is useful to create a minimum company value amount.
The liquidation asset-based approach is even more basic, calculating the value of your company according to the amount that would be left were you to quickly sell your company and pay off all liabilities and debts.
In reality, there is little point in negotiating a sale of your company if you accept its liquidation value; simply closing up shop will get you that amount, while negotiating a sale will take time and money actually decreasing the amount you receive. This value is well below what you should expect for selling your company and is most useful as a negotiating point for a higher price.
There are multiple future earning value approaches that are based on the idea that your company’s value is based primarily on its ability to generate profit in the future.
The most common is the capitalizing past earning value approach, which uses a company’s record of past earnings (normalized for any extraordinary revenue or expenses) multiplied by the expected future cash flow and capitalization factors to predict the company’s future profit.
This approach provides the buyer with a good idea of their rate of return on investment were they to acquire the company, in addition to the probability that these levels of profit will be reached (risk factors).
Market value approaches value a company by comparing it to similar companies that have recently been sold in the market. Of course, this method is only possible when a basis for comparison is available, meaning that at least a few similar companies in terms of sector and size have recently been sold.
Unfortunately, information about acquisitions and mergers of smaller companies is often difficult to obtain making the market value approach a tool available primarily to professional appraisers or those with insider knowledge.
Valuators often combine the market value approach with other approaches to make sure that your company sells for a fair price at the market standard, an important differentiation.
These are just some of the most common company valuation approaches available to help you understand the value of your company. If you are considering selling your company, first do some research yourself with available valuation calculators, but ultimately you will most likely get a better price for all the hard work and monetary investment you have put into your company if you choose to work with a professional business appraiser.
Explore the options available to you, improve your chances of successful sale.
If you’re seeking a business to buy, then we can increase your deal flow.
In the early stages of such an important undertaking, it can be a bit of a moral maze: who do you trust?
Firm Gains gave me confidence with detailed advice and support. I would recommend their services to other entrepreneurs seeking to buy a business.Mr T Washington , Founder
I found it much easier to get my head around a business sale this way than talking to my accountant. You speak a language I understand!
Even though the whole process of selling seems daunting, I’ve got more confidence that I’m heading in the right direction.Mrs T Boothe , Founder
Thank you for your email and the excellent advice provided earlier this week. It was immensely helpful and has helped me to plan my future direction for the practice.
I would have no problem whatsoever in recommending your services in the future.Mr & Mrs Halldron , Co-Owners
Firm Gains were recommended to me and I was not disappointed. They were efficient, helpful and effective responding quickly to my request with all the facts that were needed to ensure a stress-free dialogue with our buyer.
What really helped was the advice over and above the valuation, which was immensely valuable and gave me the confidence to proceed. I would not hesitate in recommending them.Mr C Waite , Founder
We found the advice invaluable, which was clear and concise and felt your firm had a good handle on market trends and business sectors.
With also the backup of the secondary services, there was a feeling you had all bases covered if we wanted to proceed with our exit via Management Buy Out (‘MBO’).Mr D Wills , Director
Thank you for your advice. I was just about to sign up to the wrong kind of business agent for a company of our size, but read your post just in time.
I found a more serious partner, with experience in our industry and we’re already using the same language.Mr F Summerscale , Managing Director
We have been greatly impressed by the clear and impartial advice given to us by Firm Gains. After just an initial phone call we felt much better informed, with a new awareness of the many options available to us.
Firm gains understood our situation quickly and clearly and were anything but ‘pushy’. Refreshing compared to what we’d experienced before.Mr C Hutcheson , Managing Director
We are based in the Centre of Reading. Two minutes from the train station and just south of the river. You can reach us at the office, by phone or email during working hours from Monday to Friday.
Click here for directions
Reading Bridge House