Building a business can mean creating an income stream for many years to come or potentially securing a lump sum payment from someone when you sell your established business to someone else. You have invested countless hours of your own time and significant amounts of money to build a business that succeeds. You want to ensure you receive your investment back when you sell.
It can be flattering to have someone offer to purchase your business because a purchase offer validates the idea that your company has value and a profitable future. Before you jump on the first offer, it’s important that you take some time to consider what value your company truly represents.
Settling for too low of a price could mean losing out on additional funding for your retirement or your next business venture. Asking for an unrealistically high price could mean losing out on a sale that could benefit you and the business in the long run.
Future earnings
To know what the company is worth, you have to know what the company can make
You already know how much your business has made in the most recent quarter and past year. Looking at figures going back through the entire existence of the company can help you determine how much the company has grown and how much it will likely continue to grow.
Looking at other factors such as the potential for expansion, the impact of advertisements and potential future demand for the goods or services you offer will make it easier to estimate what the company could earn in the years to come. The price that you assess should reflect fair value for the potential profit that the purchaser will make. It should also offer you an opportunity to recoup your investment in the business.
Valuing assets and investments
To properly value a company, you need to know the financial value of the assets the company owns. From real estate to equipment, the company may have tens of thousands of dollars worth of valuable assets that should increase its sale price. You should also consider the investments you have made in the company and the total cost to you in terms of time and investment to build it to its current point.
You will also need to look at your total liabilities, including any mortgages or business loans that the company will need to pay off. Any serious buyer will likely expect financial documentation showing what the company has made and earning statements, as well as other important bookkeeping documents.
Reviewing them yourself before providing them to someone else to consider will help you put the best possible price on your business.