The Business Value in the current market
One of the first questions asked when I visit a new clients business is How much is my business worth. The answer is not as simple as it may seem. There are many starting points to take into account.
When assessing a business for valuation purposes the major criteria for the valuation is business profit or earnings before interest taxes. What are the annual sales for the business? More importantly, what is, is the net profit to the business after taking into account the owners salary?
How long has the business been in operation for? Most business buyers would like to see the last three-year audited trading figures. Businesses which show a steady net profit increase over that period time are looked at more favourably. On the other hand, if they see a decline, they see it as a red flag and usually probe into more significant details of the operation.
What does the Business Actually Own?
Are there any valuable Business assets? What intellectual property and other intangible assets does the business for sale own? Does the firm have a brand which has developed much trust have a period of time? Are there any items which given the edge over other competitors in the industry? For example are there any patents, copyrights goodwill, trademarks and or intangible computer-based assets?
Does it have a large customer base? Businesses who rely on fewer larger customers and have a smaller customer base tend to be worth less. On the other hand, a business with similar profitability but more customers are generally seen to be worth more.
Who actually runs the Business?
Does the business rely on the Business owner being there all the time? If the business owner appears to be the backbone buyers will get the impression that they are buying more of a job than a business.
Length of the lease. A business which has a long lease gives a new owner more time to build up the company with plenty of time for a new buyer to recover the purchase price and make a decent profit. Buyers are reluctant to pay a premium for business without a favourable long lease.
Is the Real Estate included in the business sale? If that is a case, the appraiser would have to split your estimate based on the highest and best use of real estate on its own without the business. This is added to the forecast on the business value.
How do Business value multiples work?
In summary, there are various rules of thumb or multiples/price to earning ratios etc. for almost all types of similar businesses. This is more of a general kind of estimate. Additionally, other factors could move this general multiple up or down. This would include the lease rental of the property, outgoings payable, length of the lease & equity. Other factors include the time the business has been operating, amount and age of equipment, specialist skills required for business, right Business Systems, cash flow, availability to replace any specialists staff etc.
Large and small business owners must be aware that business values can fluctuate on a regular basis. It boils down to supply and demand for the goods and or services you are providing and current competition in your particular market. Changing demographics can also affect values. For example growing demand for new high demand industries such as childcare in some areas. On the other hand, you have a situation worldwide with the current baby boomer generation of business owners reaching retirement age. Many commentators believe that this will most likely lead to a softening of business values as more supply enters the market place.
How personal issues can affect Business Values
Additionally, personal circumstances can change without warning. For example, there are family & partnership disputes, owners get sick, lose interest and want to retire, cash flow problems etc. For this reason, having your business in order can ensure that you have the best possible chance to get the best possible sale price when you need to sell. Many times we have seen the situation where a business owner has not had their business up to scratch and had to sell urgently. As a consequence, leaving a large amount of money on the table. An experienced commercial property & business broker with specialist market knowledge can assist you. This will ensure that your business is presented at its optimum best for the current buying market.
Like to find out what you Business is worth?
How much is my business worth in the current market? Like a free market appraisal and/ or a confidential discussion on how we can help you make the best timely decision on your terms? Feel free to contact Con Tastzidis on 02 9882 2221 at CST Properties or email at invest@www.cstproperties.com