Once you decide to sell your business, you need to take help to a number of steps to get ensured that you will get the highest possible price of the deal. The most important step you must be aware of is the right process for it. Selling a business is important and it takes proper preparations, planning and true commitments by the sellers to get the best price out of the business for sale.
A correct evaluation is needed to know the true value of your business. Evaluating the worth of a business is not a bed of roses, nor is it an exact mathematics. You can have a theoretical value only that will give you an idea of the price that you will put to sell your business. Here you will find some important tips which will help you to fairly evaluate your business.
The below mentioned are the three most commonly used methods of evaluating a business:
Asset Valuation This method works by considering the following steps:
- You will have to add up the value of all the assets such as cash, stock, plant and equipment and receivables.
- You will also need to add up the liabilities such as any bank loans or other debts from elsewhere or any dues.
- Now you can get the net asset value of your business by subtracting the liabilities from the assets.
Profit valuation of your business This method works by considering the following steps:
- To value your business, you will need to multiply its annual adjustment net profit with the profit multiplier.
i.e. Value of business = annual adjustment net profit X profit multiplier
Suppose your business makes $100k annual profit before tax, then multiplying it with 4 (an indication of profit multiplier) will make its value to $400k per year.
From a buyers view, they will get 25% of their return on investment (ROI) per year (assuming the profit remains the same). If it is compared with a bank's interest rate, you will find it to be a good deal.
- Adjusted net profit is the profit based on the standard arm's-length principles. There should be a salary of every business owner below market rate. This may help in tax purposes or to improve cash flow. This is the adjusted net profit.
- The estimation of Profit Multiplier can be done following the below mentioned points:
a) There may be a rule or formula for the type of business you have. You need to do a market research or enquiries.
b) The lower will be the perceived risk; the higher will be the profit multiplier and vice-versa.
c) More the sustainable profit will be directly proportional to the profit multiplier and vice-versa.
Compare with other businesses for sale Apart from the above two complicated methods, you should also observe the prices of recent sales of other relevant businesses. This is the easiest of all the three methods
This method works by considering the following steps:
- You will need to do a research based on facts and figures about what is happening in the market of relevant businesses.
- Get to know what business brokers say about the value of your business. As a broker may know about the values of similar operations and the way the market is placed.
- The most important is to go to online business marketplaces, add your listing with proper image and description and bring your business to a right mass of buyers. BusinessBuySell.ca can be the best destination for this.
- This website provides an additional function of bidding which no other online business marketplaces provide. You can receive bids from buyers and see what price buyers are bidding with. You can also communicate by mail through this website.
Selling a business at a great price is not bed of roses. It is important to take help of online business marketplaces like BusinessBuySell.ca since these websites are committed of taking all the time and troubles to get this work rightly done.