A business valuation process is a complex one that takes into account numerous factors. All of these factors directly impact the resulting value of your business. When someone is planning to buy from you, the first thing they would be looking for is the profitability of your business, which directly impacts the value of your business. How the risk and return are perceived about your business also determines the value. Any factor that decreases the risk or increases the return is considered and compared with alternative investment opportunities.
This article looks at the different factors that can affect the value of your business at the time of business valuation and hence influence a major business decision.
The History & Nature of the Business
The valuation process considers the history of your business right from its inception. What are the profits and cash flow then and now, whether growth or stagnation, how well do you control costs etc.? The risk involved within the business is analysed. The industry the business belongs to, the potential for growth, the nature of competition in the industry, and whether it is seasonal, cyclical or countercyclical are all key factors.
Finances of the Business
The financial situation of the business also determines its value of the business. The working capital required to operate the business and how much is required to make improvements on the capital per year also affect the valuations. The net worth, capital structure, and debt are taken into consideration. The working capital, value of assets and liabilities are also accounted for when identifying the financial risk involved.
The General Economic Conditions
The external economic conditions are as important as the internal finances. The current national economic condition and the industry the business belongs to are considered when calculating the risk associated with a business. Other external factors include the number of potential purchasers interested in the business and your competition in the market regarding similar businesses. The valuation of these similar businesses also affects your valuation
The Value of the Intangibles
Assets that are not physical or intangible assets are also accounted for in business valuation. Intellectual property owned by the company, the goodwill the company has generated over the years, customer relationships and profitability and the business’s growth potential is the intangibles that are counted in.
The People in the Company
The employees of a company and their value to the company value are also part of the business valuation process. The management of a company is a valuable asset. How they carry out the company’s needs and their record of success are taken into account during business valuation. The skills of the employees and the business’s dependence on these skills, as the years of experience of these staff, are also key factors.
Hiring Business Valuation Experts
Business valuation is critical when you are planning to buy or sell a business. A company will have to draw up a business valuation in case of litigation to prepare an exit strategy in case of a buying or sale, acquisition, merger or strategic planning.
A lot of the factors may be out of your control. It can also affect your time of sale as you wait for more favourable conditions. There are ways in which you can make your business as valuable as possible. Planning, having an exit strategy as part of your original business plan, etc., are some ways you can do this.
Getting the most value for your business is to hire a company valuation expert like RNC. RNC has been offering excellent valuation services to its clients for over three decades. At RNC, we offer real estate valuation, enterprise valuation, financial valuation, enterprise valuation, plant and machinery valuation and more. You can rely on RNC for an expert company valuation to bring in the best value for your company.
Also Read, How Does the Business Valuation Process Work