listing rates

How do you valuate your business

Probably this is the segment that neither seller nor potential buyer will see eye to eye usually. The phase “one’s man treasure is another man’s poison” – is somewhat applicable to this segment to a certain degree. There are many evaluating points and a slew of elements that make up this portion. Meaning there is no fast and fixed rule. However for the sake of this article, we would be looking at only a few major elements that may play a crucial role in determining the value or worth of the business. Selling your business may or may not be as scary as it seems, depending on the lenses of each individual.

*Disclaimer – The nature of business is plays an important determining factor and certain pointers may not be applicable or may have a lesser degree of effect.

Gross revenue vs Gross profit vs Net profit
This portion is probably the more important aspect of the business. Depending on certain situation of the potential buyer, these factors may vary according to each individual. Certain potential buyers may be more incline to focus on the gross revenue and profit. Whereas some other potential buyers may focus on the pure net profit. Kindly bear in mind, that potential buyer will look out for the breakeven point – how long would they need to recoup their investment. At Investment Ventures, we help sellers to find potential buyers / investors by sharing pointers after you have listed with us.

Level of involvement of the business owner
Kindly bear in mind that some buyers would love to be more hands-on while some would prefer the business that they are going to invest to be auto-pilot. Bear in mind and be truthful to the potential buyer.

Capital and working capital outlay
Depending on the nature of business and the industry you are in, this will have a strong impact on the outlay they are willing to risk. The individual risk appetite would also play a part in it. While some business requires a larger sum of capital, it will ultimately boil down to the level of confidence the potential buyer feels for the overall business that you are pitching. As potential sellers, your job at this stage is to; convince and allay the potential queries that the buyers may have. Of course, please do this truthfully and ethically.

Generic stakeholder landscape
Your current relationship with both your internal and external stakeholders may also play an important role. Buyers would like to take over or invest in a business that has good or at least, decent relationship with its’ employees, business partners, external partners (banks, suppliers, etc). The level of relationship affects the ease of conducting business both now and in the future in more ways that you can imagine.

Business sentiments of the industry plied
The potential market segment, size, potential scalability of the business have to be taken into strong consideration. Most potential buyers that have done their due diligence would look into these. Address this issue and they would know that you as a seller, has thought it through and this will usually reflect well and their (buyers) confidence in you.

At the end of the day, kindly note that how much one is valued at is determined by how much the other party feels. There may be guidelines and norms to follow but it ultimately boils down to both the potential buyer and you.