Selling your business can happen for many different reasons. From retirement, to being bought by a competitor, to financial troubles – no matter the reason, you’ll have a lot of things to consider. The first thing to do when thinking about selling your business is determining what it’s worth.
Net assets valuation
Add up the value of all your assets including equipment, furniture, vehicles, stock, accounts receivable and/or cash in the bank
Subtract any liabilities, such as money owed to others and any possible taxes owed if someone is buying company shares
Net assets plus goodwill
Add goodwill to your net assets valuation. Goodwill is a payment based on assumption of ongoing sales and profit. Goodwill can include:
Great relationships with customers and suppliers
Good cash flow and no debt
Loyal, knowledgeable and experienced staff who’ll stay on
Anything that gives the business an advantage in the marketplace
Market value
This compares your business to recent sales. For example, farms may be based on production capacity or software companies on recurring revenue.
Market value is dictated by demand and not by actual value
Ways to maximize the value of your business:
A forecast of net profit for the coming year to determine how healthy your business is
A statement of cash flows that highlight a year of stability
Improve working capital position by selling under-used equipment and assets
Make sure systems and processes are at an excellent standard and well documented