If you are thinking of selling your business then before you put it on the market you have to have an idea of what the business is worth. There are several ways that you can get a ballpark figure for your business.
5 THINGS TO CONSIDER
1. You may know of similar businesses to yours that have been sold recently. You can research their accounts at Companies House and perhaps talk to people involved in the buying or selling of the businesses to see what intelligence you can glean. Be careful, though, because rumours abound and you will need to base your valuation on facts, not rumours.
2. You can engage a business sale agent, who will provide advice, having seen what people are prepared to pay for similar businesses. Some agents will not charge for the advice but will usually charge a hefty commission on any sale they arrange. It is always worth speaking to several agents, so that you can get a range of values for your business, but remember that in order to value the business the agent must know the key facts and figures about your business. Some business valuers will charge for a valuation.
3. There are some “rules of thumb” for valuing certain businesses. For example, a profitable distributorship may be worth its turnover. A property developer may be worth the net value of its holdings. A service business may only be worth a initial sum that will be augmented if the clients or customers of the business remain dealing with it.
4. Your accountants may have had experience of what businesses similar to yours have been sold for and you can ask them.
5. You might want to think what you would have been prepared to pay for a business like yours, if you wanted to buy it.
Once you have a ballpark figure in mind, you can test the market. However there will be opportunities to improve on the ballpark figure by making provisions in the contract for extra payments. One common feature in the contract for the sale of a business is an “earn out” which the seller will get, depending on the future performance of the business. There will be highly technical clauses dealing with earn outs, and sellers should not rely on earn outs because once the business is sold it will be in the hands of the buyer who may not be able to make it as profitable as the seller made it. Earn outs may be staged based on profits over two or three years.
There is no easy answer to the question of what your business is worth. You should do your research, take advice but ultimately follow your gut instincts, which have probably served you well when you started the business and grew it.
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