Selling a business can be complex, especially agreeing the sale price of a business which you have invested time and money in. Whether you’re selling in order to retire or moving on to a new project, both buyer and seller will want to feel like they’ve had a good price.
What to consider when valuing a business
Whilst the value of anything lies in how much someone is willing to pay for it, there are several factors which can help determine the price you ask for when selling a business.
Your accounts data will provide data that you need about how financially healthy the business is, which is a good starting point. Tangible assets such as equipment or stock usually have a clear value which is easy to establish. Less straightforward are intangible assets – those parts of the business that have value but no physical form, such as brand authority, customer relationships, or trademarks.
These influence the value of a business because of the effect they have on its ability to make money, which is what the buyer is most interested in. Earnings over time matter too! A business offering a quick profit means less long term obligations and risk, but some buyers might be more interested in longevity.
How do I show the value of my business?
Realistic forecasting based on thorough financial reports and evidence of agreements are the most convincing way to give a buyer the confidence they need to spend their money on your business.
Your accounts figures will help demonstrate the worth of your existing brand, infrastructure and network over the cost of launching a copycat startup.
Likewise, evidence of agreements in place or currently being negotiated can help a buyer recognise the value that the business has to the market it serves. For example, a contract to supply materials for an upcoming project, or advanced discussions with a retailer who is very interested in your product indicate future opportunities to make money.
Common mistake to avoid:
Don’t be tempted to try and sell your business based entirely on the potential you think it has, without any evidence to back up your claims – the chances are that you’ll struggle to find a buyer this way!
Valuation versus price
The value of a business doesn’t necessarily mean that is the price you’ll be paid. A bit like buying a house or a car, the published figure is often the benchmark from which to start negotiations. The final price which gets can be at the mercy of other influences, not least the buyer’s ability to pick holes in the presentation (looking at you, Dragon’s Den).
Do you need to sell urgently, or are you being forced to make a sale? That might force you to drop the price. Are there upcoming changes to legislation or new funding becoming available? Those too will have an effect on how your business performs.
If you’re thinking of selling your business, your accountant will be able to offer support with the process, including tax considerations!
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A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.