How Much Is My Business Worth?

Most business owners like to think they have a pretty good idea of what their business is worth. Some will show me their asset list and tell me the business is worth the sum of the assets. Some will tell me their business is worth three times last year's cash flow. Others will tell me they really have no idea, but they need to pay off their bank debt, their inventory and a host of other bills.

So, how much is your business worth?

The truth is there is no magical formula. There are many factors to determine selling price. Tangible factors include assets, cash flow, revenue and rent. Intangible factors include economic conditions, industry and recent sales of like businesses.

It is difficult to value "goodwill." Goodwill is the difference between the market value of the business assets and the selling price. Goodwill can also be looked upon as the value of the customer loyalty, brand recognition, competitive advantage or reputation. Buyers have a difficult time assessing the impact of a sale on customer loyalty and the brand; therefore, they have a difficult time determining a price for it.

The future is uncertain. Transition is often difficult. Once the new owner takes over, the business will change. Will the new owner be more, or less, successful? Will employees, customers and suppliers like the changes, or not? And in recent times, will economic conditions be kind to the new owner, or cruel? Assessing the risk is a difficult chore for the buyer.

Value and price are correlated, but by no means perfectly. The final price is determined through the open market negotiations by buyers and you, the seller. The price is what you receive for the business, the value may have been more, or less, than the price.

How Can Price Correlate More Highly with Value?

A third-party business valuation is always a useful tool in providing an independent assessment of a businesses value to prospective buyers. A business with a third-party valuation is more likely to sell quickly and nearer to its value than a business without a valuation.

For more information on business valuations, please contact Eric at 239-405-8818 or eric@bluechipbizsolutions.com