What's your business worth?

The value of your business will be based on lots of factors, including things like the assets you own, and the industry or sector you’re in.  

Comparisons will obviously be made with other businesses of a similar size, doing the same kind of activity.

However, there are three key things business valuers look for across ALL types of businesses, so focusing on these will help you attract a premium price.

The first thing business valuers look at is PROFIT

In basic terms, businesses are usually sold for a multiple of the annual profit they make.  The multiple will be different depending on the sector.

To get a reliable indication of a business’s profitability, a valuer will use a standard financial metric we catchily call EBITDA, (which is essentially profit before interest, tax, depreciation etc has been taken into account).

Once a business’s EBITDA (or profitability number) is calculated, this can be multiplied by the number used for that sector to arrive at a value.

So, for example if a business’s EBITDA number is a million pounds a year, and the multiple for that industry is 5, then a rough business valuation would be £5 million.

The second point valuers look at is RISK

Buyers are looking for a clean business, so one that has no hidden debt or major risks attached to it. 

They’ll take a proper look under the bonnet of the business to check there are no nasties there (for example unpaid tax, loans, unresolved disputes etc).

They’ll also be interested in things like reliance on single customers or suppliers, staff turnover rates, and the stability of the company’s financial history. 

Any alarm bells ringing can affect a business’s value, or stop the sale altogether.

The final key point valuers are interested in is EFFICIENCY

If a business has efficient systems and less dependency on key people, it’s clearly going to be more appealing to buyers than a business with poor systems or one that relies heavily on the involvement of the business owner.  

Things like clear processes, practical policies and training procedures will all help to get your company in better shape. 

It’s a bit like if you bought a house that was newly decorated with a landscaped garden, you’d expect to pay more than you would for a house that needed renovating and had a garden full of weeds.

So, in summary...

Your business value will always be heavily influenced by the sector you work in, but these three things – profit, risk and efficiency – apply to all businesses, regardless of industry.

Focusing on these will make your business stand out from competitors and help you attract the maximum value possible.