Valuing a business

How much is your business worth? How can you make it more valuable?

The worth of a business depends on how much profit a buyer can make from it, balanced by the risks involved. Past profitability and asset values are only the starting points. It is often intangible factors, such as key business relationships, which provide the most value.

Why value the business?

To help you buy or sell a business: Improve the business’ real or perceived value, choose a good time to buy or sell, negotiate better terms, complete the deal faster, etc.
 
To raise equity capital
(to agree a price for the new shares being issued).

To create an internal market for shares (to buy and sell shares at a fair price).

To motivate management. Regular valuation is a good discipline. It can provide a measurement and incentive for management performance, focus management on important issues, identify areas of the business which need to be changed.

Three basic criteria affect valuation:

The circumstances of the valuation:
An ongoing business can be valued in several different ways, a ‘forced sale’ will drive down the value, if you are in the process of liquidating the business its value will be the sum of its realisable assets, less liabilities, etc.

How tangible are the business assets? A business which owns property or machinery has tangible assets. Many businesses have almost no tangible assets beyond office equipment. The main thing you are valuing is future profitability.

How old the business is. A young business may have a negative net asset value, yet may be highly valuable in terms of future profitability. Many businesses make losses in their first few years.

Valuation Methods

Please see details at the following link:

Intangible issues

Please see details at the following link:

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