Even if you aren’t in a huge rush to sell your business, it never hurts to know exactly how much it’s worth. A business isn’t valued the same way a condo is – there are a lot of factors that play into the monetary worth of your business as an ongoing system. Understanding these factors, and most importantly, how to measure them will help you come to an accurate figure.
CONTRAST YOUR REVENUE WITH YOUR PROFIT
A lot of entrepreneurs and small business owners make the common mistake of placing too much emphasis on revenue. You could have a substantially high monthly revenue, but what does that actually mean for you? If your business takes in $15,000 a month, but also sees $12,000 in monthly expenses, that revenue doesn’t mean very much. At the end of the day, you’re only taking in a $3,000 surplus a month. This means your business isn’t very profitable, which is what most buyers are looking for.
Most of the time, the worth of a business is based on its revenue, but a buyer won’t be willing to pay anything for a business that isn’t profitable. It will take them longer to see profits on the sale, and if you have a low flow of profit, this could make your business less desirable when you use that revenue model.
DETERMINE YOUR TRUE POTENTIAL FOR GROWTH
If the growth isn’t there, the person who ultimately purchases your business will need to invest more of their own money in order to change the outlook. If you’ve consistently grown in a predictable way over the past few years, this is something important to take into account when determining the worth of your business. Buyers will make their cash back in a reasonable timeframe, which means you shouldn’t feel tempted to request a sum that’s more modest than necessary.
APPRAISE YOUR BUSINESS
There are groups that exist specifically to appraise businesses. They’re kind of like real estate agents, but with a broader focus that takes all of your data into account. It’s relatively easy to get a valuation on a business that exists in one or more physical locations. Things like internet based businesses or profitable websites that function as businesses may be a little more difficult to valuate. If that’s what you’re dealing with, you’ll likely find resources like Digital Exits to be helpful.
THINK ABOUT A POTENTIAL SALE
The worth of a business comes from more than just the facts and figures on paper. Some businesses are in very specialty niches and don’t serve a broad audience. Sometimes, owners are looking to sell their businesses quickly and cannot afford to hold out until a buyer with deep pockets comes along. It’s a matter of finding the balance between the numbers and the situation that will help you determine a fair asking price in the event you’d like to sell.
All things aside, you might find that the worth of your business is relative. Would it really be beneficial to hold out six months for someone who is willing to pay $10,000 above the previous offer you received? In certain scenarios, the worth of your business may come down to intuition and what you believe is right in the moment. Just make sure you do your research and you’re making a decision that you’re comfortable with.