How to value your business
The value of the business is usually top of mind for anyone wanting to sell their business. While there will be a multiple and a formula that can be applied to derive a monetary value, that will not usually tell the full story.
One of the best reasons to work with an experienced business broker is that they will help you to understand the ins and outs of your business value. In doing so, they will relate this understanding of value to a broader framework to clarify the actions that you can take, including choosing the most appropriate sale process and timing for you.
In short, there is usually more than one value for a business.
Valuing Goodwill
For goodwill and / or other intangible assets (e.g. client / customer lists, licenses, patents, brands) to be of value requires those intangible assets to earn something for the business. Most people will see the “Goodwill” value simply as part of the earnings that can be discovered as part of the historical performance and results of the business. To have value over and above that requires demonstrable assets and the earnings they can achieve in the business model – a harder, but not impossible, test.
I can help with that analysis and explain it in simple terms.
A purchaser and valuer will often use the amount of goodwill in a purchase price as a “common sense check” of their offer price or view on the overall value of the business. Their assessment will often reflect their views on perceived risks and information made available at the time of any discussions (another reason for a high-quality information memorandum!).
High risk businesses will have very low goodwill multiples (e.g. a multiple of 1 or less), whereas longer established profitable businesses with repeat business and / or strong growth prospects will often have higher goodwill multiples (e.g. multiples of 2 or higher).
The “art” of any negotiation or valuation is understanding what these positions might be and being able to advocate for the business with a high degree of certainty and credibility
In the negotiation my knowledge and understanding of goodwill can benefit your position.
What is a good “multiple”
I am often asked – “what is a good multiple for my business” or “what multiples are people paying for similar businesses”? This is a relatively general question and usually can only be answered with a “general” answer.
In reality, the real answer is very nuanced when it comes to valuing a business. Yes, you will often have a starting point where a relatively standard profit multiple is used – for example, it could be in the 3 to 4 times range (or not!).
However, the real question is what the individual circumstances of the business are and how the business will be perceived by the outside world? There will be views that your business may have increased risk compared to industry peers (and therefore a multiple might apply) or it might be on a growth curve and in a desirable industry (and justify a higher multiple). To get a meaningful answer requires detailed analysis of the business concerned, in addition to current market experience and insight.
I can help you with these insights by preparing a suitable business appraisal.
Understanding that these multiples range, along with the actions you can take as an owner to improve your position, is central to maximising the value of your business. I can help you with that understanding.
In every case, it is important to make sure you are comparing apples with apples when talking about multiples.
Call me to discuss your thinking
Business Value
There is always more than one value for a business. It is my role to simplify the various scenarios in order to achieve the best sales value for you and your situation.
Business Confidence
A solid and effective business sales strategy hinges on in-depth knowledge and information. Act with confidence knowing that you are making the best of your position and your situation.
Business Experience
My in-depth involvement with many and varied business sales has given me the ability to identify all the possible “variables” that impact the outcome of a business sale.
Business Value
There is always more than one value for a business. It is my role to simplify the various scenarios in order to achieve the best sales value for you and your situation.
Business Confidence
A solid and effective business sales strategy hinges on in-depth knowledge and information. Act with confidence knowing that you are making the best of your position and your situation.
Business Experience
My in-depth involvement with many and varied business sales has given me the ability to identify all the possible “variables” that impact the outcome of a business sale.
