A business valuation
provides the company owner with a means with which to measure achievements,
losses, and profits. It also provides the owner with the opportunity to
determine what the business is worth. Knowing the true value of a company makes
it possible to prepare for sale, investment attraction, a loan application, and/or
As such, it is imperative to call in the assistance of an experienced business broker when determining the value of the business and a market-related selling price. True, as the owner, you can do it without outside assistance, but it is difficult to be objective and the valuation might lack credibility with potential investors or buyers.
You can compare your recent sales with similarly structured entities within the same industry and within the same geographical area. You can also consider the income generation capacity and the risks related to your business specifically. Finally, you can assess how the business is performing in terms of assets and financial health.
Various formulas can be used, but knowing which one to apply to your business and whether to use more than one formula is where it can become tricky. The basics entail looking at the current and historic figures of the business, but there are many more factors to be considered.
Various non-valued factors can affect the true value of the business, such as the day-to-day business operations, the various income streams, and the owner’s expenses. It is also extremely important to be realistic about the company’s true worth. Indeed, just about every business owner thinks their company is worth more than it actually is, simply because they are involved and know how much they have put in to get it where it is now.
The owner’s optimism can be problematic when you want an accurate business valuation and to this end, it is better to stand back and let a professional, such as an experienced business broker, conduct the valuation.
Your business is not an island. It operates within an industry and is affected by what happens in the particular sector. You need to stay up to date with what happens in the particular sector. Also, if a similar company in your industry sells for R2 million, but it is five times bigger than your company, then you cannot expect to also get a R2 million selling price (unless your profit trumps theirs).
Let us help you get an objective, industry-related, and accurate business valuation in South Africa to determine a fair and market-related selling price. It will provide you with insight regarding the asset value, as a mere estimate is not enough. We will help you determine the business’s true resale value that is relevant to the current market, your location, and the sector in which the business operates.