Top 5 Most Important Factors Affecting Business Valuation
You’re approaching the time to exit the business you built from the ground up. You’re considering selling, but one question has nagged you: “What is my business worth?”
You may feel like you don’t want anyone to know you don’t have a firm grasp on the value of your business. But you’re not alone. That’s often the first question business owners have when approaching business brokers about putting their company on the market.
The team of experienced professionals at Sunbelt Business Brokers works with small and medium businesses to quickly sell for maximum value at closing. You can get a quick idea about the value of your business with Sunbelt Business Brokers’ business valuation calculator.
Take a closer look at what key factors affect business valuation.
What Is Business Valuation?
Business valuation is an estimate — based on data — by a professional of what a buyer is willing to pay for your business. The estimate comes from analyzing such aspects of the company as assets, earnings, and market position.
To maximize the worth of your business, you need to start long before you’re ready to leave to make the improvements necessary to boost the data behind the valuation. Consider bringing onboard business brokers like Sunbelt Business Brokers, who can guide you in maximizing factors to sell your business at or above the price you want.
The Top 5 Factors Business Brokers Evaluate
How much your business is worth is supported by many factors. However, because they understand what buyers seek, business brokers tend to focus on these top five factors for business valuation.
1. Financial Performance
A buyer wants to see the financial performance of your business for the last three to five years. Additionally, a buyer wants to understand the direction your revenue and expenses are heading. Strong financials demonstrated through your profit and loss statement, balance sheet, and tax return can increase the value of your business.
2. Growth Potential
Looking back at the health of your company is important, but buyers also want an idea of where your company is heading. What are the revenue and profit projections for your business, and what supports those estimates? Your growth potential is the capacity and likelihood your company can expand, possibly into other markets.
3. Customer Base
The size of your customer base, the length of time they have been customers, and their behavior are considerations for a buyer. If you had just one significant customer, that’s a risk. However, more customers who are loyal and pay on time can reduce risk, increasing your company’s value.
4. Market Conditions
While what’s happening inside your company plays a big role in valuation, what’s going on outside impacts your company’s value, too. The market conditions you operate in can determine the value a buyer places on your business.
5. Reliance on the Owner
Buyers want to see a company that can continue without the owner. The more your business can operate without you, the higher your business valuation may be.
Bring on Business Brokers Early
The key to a business valuation for a sale is to bring on business brokers long before you plan to exit to get maximum value from your business. Working with Sunbelt Business Brokers can help you identify the state of these factors and others to raise the value of your business before going to market.