Business Valuation

How to determine your business worth?

Business valuation has to do with you determining what your business is worth. There are many reasons for doing this. It could be that you want to sell your business, or you may want to take a loan that requires the lender knowing the value of your business. Whatever reason you may have, there is a way to do it. Here is the process for valuing your business

Prepare business information

Valuation is done with the information, so you have to prepare adequate information to get the right valuation. You may need help with many documents, it is best to use professionals for this, but if you can’t, consider asking your family members or friends who are experienced to do it for you. Our potential buyers would like to know the value of your business independently, and the documents you have prepared will guide them to do that. Here are some of the information you have to prepare
Finance and assets
This will entail preparing a financial statement, if possible for the last five years and covering the cash flow statement, annual turnover, debts, profit and loss statement, etc. it also includes providing details of your assets both the physical and other assets.
Legal Information
Registration papers like the Australian Business Number registration papers, business name certificates, licenses, permits, and all documents that show compliance. You also need to prepare legal documents such as insurance policies and leases.
Business profile, plans, and procedures
This covers basic information about your business, such as the market conditions, sales information, business history, business plan, documentation of business procedure, etc.
Employee, customer and supplier information
This includes all details about the employee such as job description and work history, customers such as the customer profiles and marketing activities, and suppliers such as greenings and prices.
Get Professional Advice
You can use a business advisor, broker, or accountant to value your business if you can afford it. They will analyse the finances, identify market trends, estimate future profit of the business, calculate goodwill value and arrive at the right value.
Choose the valuation method

There are different valuation methods available, and in the end, you will be using different methods together to arrive at a final value. The investor, lender, or buyer may want you to use a particular method.  Using a professional means, they will help you decide the best method to use. Here are some of the popular methods:

  • Current market values
  • Business asset value
  • Return on investment
  • Future profit of a business
  • Cost of starting a business from scratch

The industry you are in can also determine the valuation method you will use.

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