If you’re looking to exit your business, you’re bound to want to get the highest valuation possible, without misleading anyone. Here, we’ve prepared a handy guide on how to value a company to get you started.
Knowing your market, and your potential buyers
Of course your business really is only worth as much as someone will offer you for it, and depending on the type of buyer that’s interested, you’ll likely see very different figures. Generally, there are three different types of buyer, and we can categorise these as follows:
- Those who want to strip the assets from your business to make a profit (asset strippers)
- Buyers looking to synergise your business with their own strategies (strategic buyers)
- Buyers looking to make a profit from running your business as it stands (financial buyers)
How to value a business calculator- Valuation techniques
Although these three types of buyer will be looking at your business in different ways, some of the business valuation methods they’ll use are similar, and here we explain just a few of them:
Net Book Valuation
Often implemented for engineering or manufacturing business, this method allows for circumstances where there are tangible assets that can include buildings or machinery. A Net Book Valuation takes into account the total assets, and takes away your total liabilities to come up with the net book figure, although the figure has to be adjusted to take into account the current climate, amongst other factors.
Multiple of turnover (MOT) valuation
Often used for consultancy or service based companies with their own client base generating regular income, the simple calculation used is to calculate a multiple of the businesses annual turnover. The figure may be adjusted in order to reflect the income achieved from agreements between the business and customers in the form of contracts. The usual ratios for consulting or service based businesses can range from 0.7-1.3, taking into account how large and how string the business is.
Multiple of earnings (MOE) value
Perhaps the most popular method is the multiple of earnings calculation. Often used as a reference from a variety of other techniques, it calculates the value of the business that the buyer will be able to take before a variety of factors are taken into account, such as amortisation, depreciation, tax and interest. This number is then multiplied by a ratio – commonly ranging, but by no means restricted to between 1.9-8, depending on turnover and size.
Getting help with valuations and sales
Although these are just some of the valuation methods used, getting your business valued by the professionals is a much more valid way to go in order to attain a successful sale. With companies such as Company Valuation Services, with a portfolio of buyers already looking for new investments, they may have the perfect buyers for your business already on their books, which will allow you to get in front of people looking to buy a business just like yours quickly and at a good price.
It’s a great time to sell
Due to the recent stabilisation of the economy, more and more exit strategies are being realised at a good price. If you’re considering the question “how much is my business worth?” it’s certainly a good time to look into getting a professional valuation, given the current state of the economy.
