Learn the best ways to value your business with Daltons Business
There’s no denying it, when it comes to the bottom line, what a business is worth in financial terms is of great interest to both buyers and sellers alike. However, how to value a business correctly is hotly debated, and the importance of a good valuation is reflected in the seemingly countless ways in which both professionals and amateurs alike approach the problem.
Put simply, there’s no definitive way in which to value a business, and a wealth of methods currently exist that make the process somewhat complicated and confusing. However, when we break it down into its simplest form, the question of how to value your business effectively becomes simple; the worth of your business is determined by whatever a buyer is willing to pay.
With this in mind, we look at some of the approaches that will help you get a grasp of how best to value your own business. Without becoming overly technical, our guide will allow you to set a fair price that will both attract buyers and maximise your profit. Read on and learn how to value your business with Daltons Business.
How to Value a Business – 3 Approaches
Firstly, there’s absolutely no shame in using a service that can value your business for you. Whether you are feeling overwhelmed by the sheer number of valuation options out there, or you simply want a quick guide from which to base calculations on, then Daltons Business can help.
Our online business value calculator allows you to get a snapshot of what your business is worth with little to no effort on your part. However, if you are looking for something a little more comprehensive than our free valuation service puts you directly in touch with an expert.
Having said this, understanding how business valuations are made is a useful skill that will help you to get an idea of where you can improve day-to-day operation, and subsequently, your value. So, whether you feel undervalued for any reason, you want to bring your business up to scratch, or you’re simply curious as to what you’re business might be worth, then these three approaches are a great place to start.
Profit Based Valuations
Probably the most common approach when considering how to value a business in the UK or US, a multiple of profits are calculated based on a variety of factors which then translate into a final value. Put simply, this method calculates the profits a buyer will be able to extract after tax and other expenses.
There are a number of ratios in use depending on the industry, size, location, and turnover of the business. Generally, these are easy to find, however, this approach becomes complicated due to the fact that there is no standard ratio used across all types of business. If you do a little research into your industry you’ll probably find what you are looking for.
Start-Up Based Valuations
This type of approach essentially examines what it would cost someone to start a business from scratch and places a value according to this metric. Start-up based valuations look at how much it would cost to purchase assets, train staff, rent buildings, and even what it might cost for product development.
Particularly useful when considering how to value a small business, this approach appeals to new entrepreneurs and business owners who are looking to get a foot on the ladder or enter a new industry. Start-up based valuations are generally very unique to individual businesses and because of this, can be something of an unknown quantity.
Asset Based Valuations
An asset-based valuation is the ideal approach for a company that has a large number of assets. This approach simply quantifies the total amount of assets and deducts any liabilities in order to place a value on your business. Valuing a business using this method requires ensuring that books and numbers are immaculate.
If you want to know how to value a business using this system then it’s a good idea to get a third party involved to objectively examine your assets and ensure that any paperwork is in order. Finally, ensure that the buyer can also examine the valuation process to assure transparency.
How to Value a Business – Last Word
Placing a value on your business is among the most crucial, and challenging aspects of the sale. Whilst these three approaches give you some kind of tangible entry to the valuation process, there are countless other factors that play a part. These include current market conditions, wider economic conditions, staff and owner salaries, stock options, and tax deductions.
Often it is a good idea to get a “casual” valuation using a tool such as that found on our website and then begin to break down that valuation into its component parts. This will allow you to fine-tune any areas of value to better represent your business and its unique worth. However, you decide to approach the problem, keep our guide handy and refer back to the relevant chapters to help identify how best to value your business.