As an entrepreneur, it is a must to know your business’s worth so that you’ll know the maximum sales value and how much effort you need to put in to grow your business even more. In general, business owners are focused on increasing sales, figuring out how to grow sales, and running the business efficiently – these efforts would lead to increasing the value of your business. However, it does not directly answer the question, “what is the worth of your business?”
To have an exact figure or at least close to perfect estimate as to how much your business is worth, you have to consider some essential things, which include the following:
- Earnings – You can think about your business’s worth based on how much it earns, but there’s a lot of factors that fall into it – industry you are in, length in the business, customer concentration issues if there are any, and other intangible things that go into it.
- Customer concentration – What it means by customer concentration issue is having a business competitor that takes business away from you aggressively. If this issue is present, then your business is going to be at the bottom end. Should you wish to maximize the value of your business, then you need to first deal with the customer concentration issue before selling your business.
- Competitive advantage – These refer to the intangibles – intellectual property, length in the business, and other sustainable benefits, basically, how big is the moat around the company. These are things that give your maximum business protection and taking it on the upper side of the deal. The more competitive the business advantage you have, the higher the worth of your business will be.
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What if I undervalue my business?
One of the fears of many entrepreneurs when it comes to selling their business is the possibility of undervaluing it, especially if they consider their business as their most tremendous asset. For many people, they would like to believe that their home is their largest purchase, but for people in the industry, their business is the largest purchase of their life. However, you have to be very careful not to overprice it as doing so would cause people not to be interested in your business. On the other hand, you have to be strategic to make sure you do not undervalue your business. Getting a good market value is essential. The point here is to know how to put the right team and see to it; your pricing is per the current market condition.
To come up with a close estimate as to how much your business is worth, you can hire the service of an appraiser or a business broker. Appraisers are good for estate sales (things nobody is running), but the problem in small companies is most often than not, nobody is willing to write a check for it. Business brokers offer more advantages than appraisers because the former buys and sells businesses full-time. Brokers focus on comparable sales in the last six months with companies similar to yours. They are more inclined to know the market data, and they would come up with a strategy that would shoot up the worth of your business. Business brokers do a market analysis, take your business to the market, put a story together, and maximize the sales of your business.
If you want to find out more information about maximizing your business’ worth, selling and buying a business, do not hesitate to contact Robert Hirsch from Freedom Factory. He and his team would be glad to give you any help.