If you ever receive an offer to buy out your business, or you simply wish to consider how much your business is worth, there are many ways of calculating value. But business valuation is often fundamentally assigned to profitability and asset value, there are many additional variables to consider that are of worth, and sometimes, of more worth, than the exact figures of how much profit a business is currently reporting.
Perhaps the truest way to assess business value is to find what someone is willing to pay for it when all of the numbers are calculated and all of the variables considered. Your business may be technically worth more than what you sell it for, for instance, but if you cannot find a sale, is that value of any import?
In this post, we’ll discuss three business valuation techniques you can work on. Combined with essential appraisal management, you’ll be able to come to this understanding more readily. Without further ado, let’s get started:
Value Your Assets
If your business has significant tangible assets then it’s worth calculating the value of this, and also considering how easily this could be liquidated, and for what forecasted figure. This is why our prior recommendation of appraisals for property can be so worthwhile, but valuing your assets can also involve staff, vehicles, furniture and fixtures, as well as intangible assets such as intellectual property and brand recognition. In some cases, for instance, a logo can even be worth something, given its ability to be identified and recognized. There’s a reason companies usually only make slight updates to their logos over the years, pending a full rebrand. Assets value can then be used to offset your potential liabilities.
Consider Price/Earnings Ratio
The sustainable profits of a brand are essential to consider ahead of time, because this helps you assess how healthy the cash flow of a business is, and how long it may be able to keep making this kind of revenue should the status quo continue. A price/earnings ratio is a ratio for determining its share price relative to earnings per share. This can also be used to help measure a company’s historical performance and growth.
Goodwill & Hidden Forms Of Value
Of course, there are many forms of value outside of simple asset valuation. Goodwill and reputation can make or break a business, and so getting a feel for this is essential. You can glean this by how many customers interact with your engagement drives, how many follow you on social media, what kind of reviews and responses a brand gets. All of this can help you gain something of a picture, as well as the potential involved with spreading that goodwill further. Some companies may suffer a reputational knock after being acquired, such as when Kraft acquired Cadburys, so it’s important to keep that in mind too, and what it may take to inspire consumer confidence once again.
With this advice, you’re certain to assess business value in the smartest possible manner.