Business Valuations And Why You Should Know What Your
South East Business Brokers
Business Is Worth
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South East Business Brokers
When it comes to valuing a business ,it has been said that a business is only worth what someone is prepared to pay for it.
Up to a point, this is true. However, it also depends upon a number of other factors such as the type of industry, how quickly someone wants to sell, and the geographical location. Even the number of employees can have an impact on the value of the business.
A company run by just one person is often not worth anything simply because more often than not, they front the business, and therefore when they leave the business ,there is no business.
How long a company has been operating also has a bearing on what a potential buyer is likely to pay for a business, simply because the company will have a track record that allows a potential buyer to see the historical performance of a company.
In addition to this, the "ease of replication", in other words, how easy it would be to replicate that business today, and in fact, what would prevent a new business owner from starting a business such as that from scratch has an impact on the value of a company. Would someone pay good money for a business that they could build up themselves from scratch for a fraction of the price? That's unlikely, but there may be factors affecting their reason for wanting to do so, such as wanting an established customer base, or revenue stream, or the fact that they may like the location of a particular business.
This is why a general store ,or a cafe ,is worth considerably less than a company that specialises in a product or service.
The future potential of a company is not as important as people think it is in terms of a valuing a business. It is the historical performance that they will want to see, hence the normal request for at least three years worth of accounts. A new owner will want to see that a company is stable and usually profitable and has a future, but they will not normally take into consideration things that an existing owner suggests as giving increased profits within the company. The reason for this, is that if it was such a good profitable idea, why didn't the existing owner implement these changes?
The lease can have a major impact on the value of a business. How long is left on the lease? Are there unsatisfactory restrictive terms on the lease? Can the lease be automatically renewed? Is the business reliant upon operating from a given location, or is it relocatable?
Most business owners do not understand how their business will be valued, and therefore they are not aware of what they can do in order to add value to it whilst they own the business.
This is something of a tragedy, as if they knew how a business would be valued, they would know how to add value to it.
For professional confidential advice and a free indication of value, then why not contact us?