Factors That Influence the Business Valuation Formula

factors That Influence the Business Valuation Formula

To truly gain a profit, though, you must fully understand the value of your business.

When estimating the value of your company, there is a myriad of key factors that can substantially impact the business valuation formula.

Business valuation formula

What if a single error ruined the biggest sale of your life?

Many entrepreneurs work hard every day to turn their business into a success. The ultimate goal is typically to sell their successful business and reap a significant profit.

To truly gain a profit, though, you must fully understand the value of your business. And that means understanding what actually goes into a proper business valuation.

Wondering which factors impact your business valuation? Keep reading to find out!

Room to Grow

When someone buys your business, they are not buying what it currently is. Instead, they are buying what it has the potential to become.

It is important for your business to have growth prospects and opportunities for easy expansion. These help boost your brand in the here and now while showcasing your full potential to prospective buyers, especially if your company is young.

This is why analytics should be at the heart of any growing business. You can have your finger on the pulse of emerging trends and tailor your business to changing demographics and tastes.

Financial Performance

Growth potential is only one part of the valuation formula. Potential buyers are also interested in your past financial performance.

Put simply, it's tough to project future potential if your business has been bleeding money. Conversely, if you've steadily turned a profit for the past 3 years or so, your business will seem like a stable and steady investment.

Ultimately, this is why it makes sense to try to sell your business when it is at its peak performance and you have the financial records to prove it.

The Competition

A buyer inherits more than your future prospects when they buy your business. They also inherit all of your competition.

Make no mistake: buyers want to know what your competitors are like. This includes both the size of the competition and their overall numbers.

For example, if your market segment has a handful of large competitors, that can be a bad sign. It means that a buyer may have an uphill climb against well-funded and well-established competition.

If the segment has mostly smaller competitors, though, this can be a good sign. It means that these smaller businesses will be easier to take on as the business grows.

Business Location

Certain parts of the business valuation formula are set in stone. For example, the business location is just as important as ever.

A business designed for hip, urban millennials may not be a hot seller if you're located in a rural area. And even if the business is a perfect fit for the area, a buyer will pay special attention to rental costs and other overhead expenses.

No matter the business, an affordable location with easy customer access will always be highly valued.

Business Valuation Formula: Your Future Awaits

Now you know the most important aspects of the business valuation formula. But do you know who can help you sell your business?

We specialize in every aspect of business sales. If you want to see how we can electrify your sales chances, try out our BizNexus service today!

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Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.

5 Best Practices For Preparing Your Business For Sale

Preparing Your Business For Sale?

Here are five best practices you don’t want to miss out.

Are you ready to put your business up for sale? Here are some best practices we recommend you use to properly prepare your business for the sale.

Business for sale

When you have a business for sale, you need to be certain that you are leaving no stone unturned when it comes to the details. 

In addition to figuring out exactly why you want to sell, you'll need to cover your legal bases and come up with a strategy that works. This will help you fetch the biggest price, while also getting help with negotiating the deal.

Follow these tips so you can prepare your business for sale.

1. Get a Thorough and Up to Date Valuation

For starters, you'll need to get a proper business valuation. During a valuation, professionals that understand the market will take an objective look at your company to see how much it is worth.

They will look into all matters of the business, including your cash flow, debt, future growth potential, and other variables.

When your business has been valued, you will know what kind of sell price the market dictates and how much you can stand to earn. Having this report will also give you leverage and clarity when you're speaking to buyers.

Start to put together documentation for your business well in advance so that you can show clean, accurate records of your revenue, budgets, and other important matters. 

2. Understand Completely Why You Want to Sell

Aside from financial implications, you need to know exactly why you intend to sell the business.

For some, it may simply be time for retirement, and selling the company can give you plenty of liquidity. You may also be at a point where cutting your losses and selling a majority of your company in an acquisition might make good sense.

Your reason for selling will help you choose which strategy can work best for you.

3. Carefully Vet Your Prospective Buyers

In addition to the sales price, you need to know who you're selling the company to.

Work with a business broker so that you can research every buyer's background. Finding a broker is crucial because studies show that only 20 to 30 percent of companies ever even find a buyer. 

When you are seeking a buyer, move as carefully as possible so that your company lands in good hands, and at a good price.

4. Have a Plan in Place For the Transition

You need to have a solid exit strategy in place so that you can comfortably transition ownership and management.

When you have a plan, you're better able to choose a successor and make sure the company is in good hands once the sale goes through. It will protect the brand moving forward, and any future equity you might retain in the company.

5. Get Some Marketing Help

Your first two priorities should be to get legal help to know exactly where you stand and making a point to stay silent on it until the time is right for you to share terms with the public.

Once you are ready to announce to the public, make sure that you have a marketing team in place to help you communicate your message.

Follow the Right Tips When You Have a Business For Sale

When you have a business for sale, these are the tips that you need to keep in mind. It will help you get the best deal while protecting your interests.

Get in touch to set up a free consultation for our business sale and acquisition advice.

BizNexus -Learn More From Our YouTube Playlist:

PREPARING TO EXIT YOUR COMPANY

Have you checked out our podcast?

THE BIZNEXUS ROUNDUP

Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.