In its most rudimentary form, the value of a business is how much the owner is prepared to accept for it and how much the buyer is prepared to pay for it.
When using a comprehensive business valuation tool the value of a business is determined by a number of key value drivers such as:
- The purpose of the valuation; for example a retirement or exit plan
- The underlying tangible assets owned by the business; if the freehold or any high value equipment is included in the sale then this will increase the overall value of the business
- The age of the business; many older and more established businesses are likely to receive a more credible value, on the other hand, a new start-up may find it harder to convince a seller of the value – although this is not always the case
- The business’ sustainable profits; a buyer is likely to be looking to purchase a business with future profitability
- Involvement of the current owners; value can sometimes come from the current owners’ day to day involvement within the business
- The current state of the industry and the general economic climate; if a business is within a thriving industry this is likely to be reflected in the value of the business.
- Management stability; potential acquirers do not want the business to be over reliant on one or a few key members of staff
- Relationships between customers and suppliers; key business relationships can often add significant value to a business. If a business doesn’t depend on one or two major customers then this is perceived as lower risk to potential acquirers
In order to realise maximum value, it is imperative to use the services of a trusted advisor in order to facilitate the sale of your business. An advisor can help to highlight the key salient points of your company whilst providing a widespread reach of potential buyers that wouldn’t otherwise be aware of the sale opportunity.
An advisor has the ability to provide choice and create a competitive bidding environment in order to maximise shareholder rewards. They will offer a pro-active approach and provide additional information to potential acquirers and outline the reasons why they should pay a premium price for it.
An adviser that works closely with the client and fully understands their requirements can have a major influence on the credibility of your business and ultimately the price that a buyer is willing to pay for it.