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How Much is Your Business Worth?

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How Much is Your Business Worth?

By , April 21, 2019
Business Valuations Blog

Thinking of selling a business? Do you know how much it is worth?

For many business owners, how to value a business remains a mystery, despite most having at least a rough idea of what their home is worth! Taking the time to create an accurate business valuation is not only informative in terms of retirement planning, but will also provide you with some key strategic drivers to increase the value of a business over time.

A business valuation is the result of two key factors: risk and reward. But within these there are many factors to consider, as not all risk and not all returns are created equal.

Evaluating risk in selling a business

The most obvious risk is “key-person risk”: how dependent is the business upon the owner/s? What about other key people within the business?

Is the business likely to be affected by disruption? Think of the industry changes to video stores and taxi cabs. Whether buying or selling a business, there are plenty of risks to consider: competitors, economic changes, employee, fraud or corruption, and political change, to name a few.

It’s important not to turn a blind eye here; identifying as many of these risks as possible will give you a more accurate idea when valuing a business. As with any investment, the higher the risk the lower the value, but this is certainly true of any privately held business.

Looking at rewards in valuing a business

Reward (or return) is also worthy of review. Firstly, reward equals profit. However, not all profits are equal because not all income is equal. A business with ongoing contracted income, which is therefore recurring and predictable, is far more valuable than a business which needs to make new sales to generate revenue.

The combination of risk and reward will drive the valuation multiple. When talking about listed companies this is often referred to as the price to earnings (PE) ratio. This ratio is the key value driver for unlisted companies as well, so it’s worth considering what can we do to drive this multiple higher and thus improve our valuation.

Beyond risk and reward, finding the right buyer is a way to maximise value when selling a business. Get in touch with us if you want to know how much your business is worth.

Christine Nicholson

Christine Nicholson

Christine is a Chartered Management Accountant with a Law degree who brings 25 years of wisdom, know-how, and experience of working with SME’s. Her long and varied career has included working overseas, rescuing technology companies, building a healthcare business from scratch and running a zoo.

She started her first successful multi-million turnover business in 2002 and has grown business ventures for others including a bankruptcy to 8-figure exit in 18 months. Christine’s engagement consistently gets her clients increasing their turnover with improved profitability and fewer working hours.

She has saved clients thousands and increased the value of their businesses by millions. Since 2008 she has generated over £100m of crystallised value in business exits.

Christine is also an author of 3 books on Finance, Business Management and Technology businesses. She is a seasoned speaker and Professionally Accredited Member of the Association of Business Mentors.