Every Friday we just want to stop the world for a moment and give you a couple of real tips to think about that will make a real difference to your business and in your life.
Now there’s an interesting question to ponder over the weekend. If someone made you an offer to consider, for the sale of your business, what price would you find acceptable? If someone asked you to “name your price”, how many zeroes do you think you could scrawl on that napkin and not have it screwed up and thrown back in your face. Or even worse – have them shake your hand so quickly that you couldn’t help but feel that you’d undervalued your years of hard work.
Having a realistic (and accurate) grasp of the value of your business is as important as knowing how much money you are going to make or need to make over a given period. If you have hopes, dreams and aspirations for your family, your business and how you get to live your life, you simply have to know what your business is worth at any one time. And not just because an investor with millions burning a hole in their pocket may be eyeing of your commercial enterprise with growing interest. It’s important to know what you’ve got, how far you’ve come and how long until the next milestone sparks party-poppers and high fives in the meeting room/kitchen/workshop.
There are a number of ways to value your business. There are calculators online with varying degrees of difficulty, formulae both easy and hard to interpret and professionals out there whose job it is to value and assess businesses. That’s a lot of info. Again, keep in mind that understanding what you’ve got is absolutely necessary, so it’s worth going through a little bit of brain strain.
Tip: Start with the simplest of simple formulae.
Profit x Business Sale Multiple = Business Value.
So an accounting firm that make $100,000 Profit could sell the business at a multiple of 3.5 times profit, making his business worth $350,000.
Yeah, that’s right. So on the one hand, your standard reporting protocols (BAS for example) tell you what you brought in and what you paid out. However, a particularly good quarter that is not followed by a compensating drop off, may actually increase the value of your business so long as your profit figure has increased as a result. In this case, it works like a multiplier effect or even compound interest in some ways. However, if you don’t know what your business is worth, you won’t be aware of potential increases in value (for sale or otherwise).
If you’d like help understanding and potentially increasing the value of your business, we can help you. Have a great weekend.
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