I Want To Sell My Business, What’s It Worth?

How To Value Your CompanyWhen it’s time to buy or sell, you’ll need to know how to value your company.

Kelowna, BC is one of the most desirable places to live in all of Canada. People from all across the country are regularly looking for an opportunity so they can move here. Most will come here and start a business or find an existing business to purchase.

The question I always get from my clients is “what is my business worth” or “how much should I pay for this business I am interesting in buying.” Let me start by saying I have certified business valuators that I work with, but I am not one myself.

I’m going to offer you some general points to consider that you will find useful when you find yourself needing to know a working knowledge on how to value your company, whether it be your own or one you’re looking to purchase.

Related: Getting Your Kelowna Business Ready To Sell

Asset Value

This is the first component to consider, as you want to immediately establish the value of the core assets of the company. This value can include real estate, technology, furniture, vehicles, equipment and other “hard” assets.

If the company has a specialized computer system or other special product or process that’s used in the day-to-day operations, that will need to be included in the sale as well. No stone can go unturned in this process!

Cash Flow

Obviously a significant part of the valuation will be based on how profitable the company is and how much cash flow it is generating. If the company has shown consistent year-over-year growth, you will easily command a higher valuation then a company that has only shown growth only within the last year.

Clients are often looking for a quick multiplier of gross sales or something times the bottom line.  I tell them that is generally bar room business valuating and more although it may offer a starting point, it will not, on its own, give them the value. Although there are multiple ways to value a business, the only way to truly value a business is to determine what you as a seller are prepared to sell it for and what a buyer is prepared to pay you for it. That is truly the only way to determine the value of any company.

Plan Ahead

When dealing with my Kelowna business clients, I typically want to know if they plan on selling their business within 3-5 years. That allows us time to ensure we are tying up all the loose ends, including structuring the business so the company is in the best position possible to attract a higher purchase price from potential buyers.

It’s always best to go into any business with an exit strategy in mind so you are never blindsided with an unmanageable obstacle. If your presence is a crucial part of how the business operates and you want to sell in the near future, you may find yourself struggling to keep the ship afloat without you – anything that hinders productivity also decreases profit, which means a lower valuation.

If you are thinking of buying or selling a business in Kelowna or anywhere else be sure that you have a trusted advisor that can help you through the process to ensure your best interests are protected. Although this small guide will give you a brief idea of how to value your company but it’s always best to trust a professional.

Based on your own experiences, do you have any advice to offer to anyone buying or selling a business?

 

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