One of the most common mistakes business owners can make when deciding to sell their business is not knowing its true value. This doesn’t mean you have to have an exact price for your business (that is why you employ an expert broker), but you should understand why your business may sell at a particular price point.
Some of the basic questions brokers start with are:
- What is the value of the business’s assets?
- What would a similar business sell for on today’s market
- What is the value this business can offer interested buyers?
This may sound simple enough, but depending upon the industry, the sector, and the individual business in question, a business valuation will follow a different approach.
It is best to think about it from a different perspective. For instance would a mining business and a Doctors practice with the same revenue sell for the same price? The value of a mining company is heavily reliant upon the hard assets that are easily obtainable. While a Doctors practice will use some hard assets, most of their value lies with its customers (especially recurring customers).
If you want to determine the value of your business, identify where that value lies. What products or services keep you in business? Why do your customers come back time and time again? What would a buyer be willing to pay for your business? What rules of thumb are used to determine the value of businesses within your industry?
By having a good understanding of your business’s value, you will know what to expect from a business sale and you’ll be able to identify which buyer offers make sense and which don’t. Furthermore, if you are able to determine the key value drivers in your business, you can find ways to increase that value and ultimately be able to maximize your business’s selling price.