Business owners often want to know what they can sell their business for. A standard joke is to ask a business owner what their business is worth … and divide by three. This is because many business owners do not understand the risk inherent in what they do and do not generate a sufficient return for the risk involved. The real question business owners need to be asking themselves is not what their business is worth, but what does their business have that would be valued by someone else?

People have different motivations for purchasing a business, but universally it is to make money … whether it is to “buy a salary” or to grow the business and sell it to someone else in the future, buyers are looking to expected future income. The price someone is willing to pay for a business is based on their assessment of the value of the business. Understanding what gives your business value is critical to being able to increase the value of your business.

Some of the factors that add value to your business or take away value from your business are:

·         Customer base

·         Reliance on key suppliers

·         Intellectual property (patents or specific expertise)

·         Competition

·         Ease of entry

·         Reliance on key persons

·         Business records

·         Collections

·         Capital investment requirements

·         Reputation

·         Operating history

·         Regulatory environment

·         Skills required

Understanding what creates value in your business or detracts from the value of your business is critical to developing strategies to grow your business’ value.

Want to learn more? … Contact us.