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BUSINESS - VALUING A BUSINESS FOR A SALE

VALUING A BUSINESS FOR A SALE -GUIDANCE BY CIS TAX REFUND SPECIALIST CIS MADE EASY

Research shows that nearly 50% of business owners thinking of selling their business don't know what value to place on it. Over 60% of small business owners don't know what their business is worth in a sale. Here is some overall guidance we hope will help.

Valuing your business for a sale is not a straight-forward task, as exact formula that applies universally to all businesses There a number of elements that need to be taken into account, so the above figures are no surprise in these circumstances.

The factors that might need to be taken into account will include:-

Business Size - Small businesses are seen as more risky and therefore command a lower price. Even if they are more efficient than larger businesses.
Future Prospects - Purchasers are often attracted by businesses with strong on-going growth rates. These will give shorter pay-back periods on a buyers investment. You might consider a sale while your business is on an upward path and before it levels out.
Profits - Normally the higher the profits you are making, the higher the vlaue of the business but some buyers specialise in cutting out costs & improving efficiency in acquisitions.
Business Mix - If your business operates in a wide mix of sectors then this may not be a good fit with a buyer who is niche and only interested in one sector. However if a buyer is looking for an acquisition with a lower risk profile, then such a diversified business will be attractive.
Customers - Both the size of your customer base and its quality will effect the value of your business, especially if the potential buyer sees opportunities for cross-selling.
Financial Control - The strength and reliability of your cash flow, balance sheet and finnacial control are critical to the assessment and perception of your business in a sale situation.

Of course it's important not to undersell the value of your business but be realistic, a potential buyer will be put off by an inflated price & possibly think you are not serious about a sale. At the end of the day supply & demand will dictate the final value of your business. If there are a number of interested parties and you can initiate a competitive bidding situation then all well and good.

There are some some things you can do to improve the potential value of your business and its perception by a buyer.

Ensure any supplier, customer or employee disputes are settled. Any such issues will result in conditions placed on the sale.
Make sure any key supplier or customer contracts are up to date and fully signed.
Any copyrights or patents such be fully finalised.
Ensure employee contracts of employment will not present any potential problems.
Make sure you have good quality management information available, management accounts are a good idea. Having regular business performance measurement figures available will help with the perception of how your business is managed.
Consider an on-line presence for your business including a website & social media accounts, if you don't already have them.

A lot of potential buyers will want to conduct "Due Deligence", this is a process of investigation and review usually performed by a firm of accountants. This can be an expensive process for the buyer, so the better the information, the more quickly and easily you can provide it and the level of co-operation you provide to the "Due Deligence " team will potentially have a significant impact on their report.