There are many ways to value and sell a business. The most important factor is finding the best way(s) for you. This short guide illustrates the best possible approach and options on how to value your business to sell.
How to value your business?
It is important to remember, when selling your business, the true value is what somebody is willing to pay for it. In order to establish such a figure, various valuation methods are used. Out of the various valuation methods set out below, two are usually used to come up with such a figure. These are:
Asset valuation – If your business has significant tangible assets, this can be appropriate.
The price earnings ratio – This can be used to value a business making sustainable profits.
Entry cost valuation – This valuation method focuses on the cost of setting up a similar business.
A discounted cash flow valuation – If your business is heavily invested and has steady cash flow over many years, this valuation method can be used.
Industry valuation rules of thumb – The final most common valuation method, uses a standard formula for your particular sector.
The most used valuation method is known as the multiples of earnings method, this values the return on investment (ROT). However, in general practice, most purchasers buy a business based off potential growth opportunities. The buyer will do this by evaluating how their skills can improve the business they are acquiring. It is therefore essential to encourage prospective buyers to value your company based on the potential growth opportunities, rather than the ROT.
Moving forward (selling the business)
After considering the valuation methods above, it is now important to consider how to actually sell the business. Generally, sellers anticipate competitors to be lining up to purchase their company. However, in practice, it is usually those with complementary trade that will purchase your business. In plain terms, this means companies that have products and services that do not clash with yours. This allows their own products to sit beside yours complementing each other along with enhancing the customer bases from both companies. Taking into account overseas buyers is also important as buyers will often pay a higher premium in order to step foot in the international market. This generally also influences local buyers as if competitors are made aware of such purchases, they will worry their sales will be affected by such acquisitions. Paying a higher price will eliminate that risk.
Keeping Your Options Open
Being able to find the ‘perfect’ buyer is difficult in practice. It is important to consider every possible option and it requires dedicated research to find the best buyers all over the world. This helps keep your option open. This will help increase the value of your business as there will be multiple buyers wanting to acquire your business. Having more options also helps regarding terms, the speed and overall price of the deal.
Instructing A Solicitor
When selling a business, legal hurdles will undoubtedly be faced. Therefore, it is vital to acquire a solicitor to help advise and assist you with making the whole process run smoother.
Monarch Solicitors specialist Business Sales Solicitors provide a tailor-made approach to your needs and give professional, practical and cost-effective advice to your intended proceedings. Please contact us by either calling 0330 127 8888 or emailing [email protected] for an initial consultation.
