How to Value a Business

 In Articles, Business, Prepare your business for sale

Find out the Truth about Business Valuations…


Don’t listen to people who tell you what you want to hear!

Then the owner may think I have worked hard in the business for 10 or 20 years and now its time to cash in on all that hard work and add a unrealistic amount to the business.

Here are some of the categories that I have come across in business owners wanting to sell when I have asked the question? what do you want for your business? they will invariably say X$ then I follow with the question: How was this figure calculated?


The answer will be along these lines;

  • From research I have done to come up with a figure I think its worth
  • My accountant suggested that amount
  • The Broker suggested the price we are asking

In 99% of cases the business has not been valued by a certified independent valuer.

My suggestion is to get professional advise from a certified business valuer that will charge you for his opinion and have a range in mind.

What is the business worth from a buyers perspective?

As a buyer we are looking at Risk and returns based on Risk, the higher the risk the higher the returns and the lower the risk then the returns will then vary depending on a number of factors you need to ask these questions:

  • What type of business is it ? most businesses will fall into these categories?
    • Retail
    • Wholesale/Distribution
    • Service
    • Manufacturing
  • How old is the business? The older it is then its more stable.
  • Is the management team to be retained after a sale? how many managers are sellers? How many management levels are there?
    • Owner/s is/are the main manager/s
    • Multiple managers
    • Multiple management levels (Managers managing mangers)
  • What is happening with sales and Profits?
    • Increasing each year
    • Up and down over the last 5 years
    • Decreasing each year
  • What is the size of the business? (types of business impact the following)
    • Under $1,000,000 sales
    • Between $1million – $5million in sales
    • Between $5million and $30million in sales
    • Over $30million in sales
  • What is your industry doing?
    • Increasing every year
    • Up and down every year
    • Declining every year

This is just a small summary of the items that impact a businesses value to a buyer so consider the above items and look at a Financial return on investment for the value of your business that will be impacted by the above and many more factors, look at a ball park return on investment range from 1 X earnings to 5 X earnings depending on Risk and the market at the time.

The above statement could have hundreds or even thousands of variations so also be open to the true value is where a willing seller and a willing buyer are prepared to meet and agree.

Remember that over 80% of businesses don’t sell!!

Contact us for a free no obligation discussion about your business and its potential value.

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