Business valuation can be an important process to carry out in a wide range of scenarios. Even if you’re not thinking of selling, it can be important when it comes to seeking investment, applying for a loan, or even assessing your business’s health more generally.
While business valuation will depend to a certain extent on what kind of organisation it is, there are some general steps you should go through – here’s where to get started.
Get your accounts in order
No matter why you’re carrying out the valuation, to start things off you need to make sure your accounts and financial documentation are in order. This is particularly important if you’re planning on selling the business; as part of their due diligence, potential buyers will need to come in and investigate the legitimacy of your valuation. If you don’t have an accountant already, now’s likely the time to get one.
Think about appropriate valuation methods
There are numerous different factors that can go into valuing a company, and different methods will be appropriate in different circumstances. Depending on your business, you might want to focus more on market position, assets, or annual income, but all of these will be relevant to a certain degree.
You’ll want to have a clear overview of annual turnover, expenses, and projected growth over the coming years. This growth will likely factor into your valuation, and it’s important that you have clear, reliable data to back yourself up with.
Speak with a business broker
In addition to consulting with experts in business valuation, you’ll likely want to reach out to a business broker. Business brokers such as Dexterity Partners have extensive experience when it comes to selling businesses.
As a result, if they have experience in your niche, they’ll likely be able to advise you on how realistic your valuation is. They’ll also be able to advise you on relevant information, such as optimal market conditions to sell your business in and potentially relevant regulatory issues.
Develop your business plan
When selling your business, if you want to maximise your return on investment you shouldn’t just be selling the existing assets. You should also work on developing a comprehensive business plan, to provide to the potential buyer. Think of this as a kind of set of instructions that you’re providing with the product you’re selling – the buyer can either use those instructions, or discard them and develop the business as they see fit. Either way, it’ll likely help to add value to your business.
A lot can hinge on getting your business valuation right. If you’re trying to sell, getting it too low can result in you not seeing an appropriate return on your investment, while getting it too high can scare off potential investors. You need to take a balanced view throughout, something that can be difficult to achieve without an external perspective. As a result, it can be incredibly beneficial to reach out for assistance from third parties, such as valuation experts and business brokers, to achieve a certain level of objectivity.
