Why You Need a Business Valuation to Determine the Right Price Tag
You cannot simply slap a price tag on your business based on what you think it is worth or what you hope to get out. It may have been your restaurant for three years and a lot of hard work has gone into it, but chances are high that you think it is worth more than what it really is. When considering selling your business, it is most important to set a market-related value. Setting a market-related asking price will not only attract more interest but also more qualified buyers. The biggest determining factor of the value of a small/medium business is the bottom line – profit.
The business valuation should be the first step if you plan to sell. It provides you with the facts and figures to determine the actual value of the business as related to assets and income values, as well as market competition.
It is essential to perform a business valuation on a minimum of three levels before you even consider putting it on the market. Indeed, it is recommended that you perform a business valuation at least once every year, as the value changes over time. Below are three benefits you gain by performing a business valuation.
1. Improved Knowledge of the Asset Value
No buyer will even consider putting forward a purchase offer if you are not able to state the true value of the assets. This process includes the asset inventory list and putting a value to each. Intellectual property, such as trademarks, patents, trade secrets, copyright, domains, and the likes, are also assets.
2. Know the Resale Value of the Business
This makes it possible to negotiate a higher price based on tangible information. To this end, the business valuation should be performed by a third party, such as a trusted business broker or valuation expert. Keep in mind that an insurance assessor looks at replacement value. You will thus also want an insurance value assessment performed every year. Conducting your own business valuation without input from an auditor, business broker, or valuation expert leaves room for error. Can you blame the buyer for perceiving an in-house valuation as rather subjective? You need the report to be credible, which is why the valuation must be performed by a third party.
3. Know the True Value
You can look at stock value, the income and expenditure of the business, the asset list, suppliers, years in trading, gross profit, and net profit, but do you really know the true value of the business? This is essential, as it also provides information about growth potential.
Where to Get Help
The answer is right here at Aldes Business Brokers. Get in touch and we will help you get an objective and credible business valuation, thereby enabling you to set a realistic selling price.