What Is Your Business Worth?
It's a really interesting question ...
POSTED BY JONATHAN VOWLES ON 25/04/2017 @ 8:00AM
If you are an entrepreneur, then one of the things that is important is knowing how much your business is worth, and what you can do to make it worth more ...
Are you ready to give up your business and hand over control of your baby to someone else?
copyright: buchachon / 123rf stock photo (licensee)
Valuing a business isn't a science. Yes, I can put together a calculation using a generally accepted methodology and arrive at a mathematically calculated value or a range of values.
"The true price of any business is what someone else is prepared to pay for it!"
Just as beauty is in the eye of the beholder, so some businesses are worth more to one person than they are to another. Which leads to a couple of interesting points:
Firstly, if different people will pay more (or less) than others, then how do you define and then find those who will pay more?
Secondly, what traits do people find attractive and what can you do to enhance the value of your business?
And thirdly, as this is more of an esoteric art than a science where do you go to get help?
This blog post isn't about finding those who will pay more, it's about those things that you can do to make your business more valuable.
The nirvana of perfection for most businesses is when the business owner doesn't have to work anymore as their business runs itself. Part of making your business more valuable is making it so that it runs like clockwork, without you as the business owner having to deal with lots of stressful hassle.
"Which means having systems!"
A system is a process that is written down so that anyone can do it, not just the expert. With systems, you can make your business nearly idiot proof (only nearly, as God keeps on making better idiots!). Systems mean that your workers can do a task exactly as you would do it and that they can repeat that task, consistently, having the same standard of excellent customer care.
Fantastic I hear you say, and yes, it can be! However, businesses are complicated, and you need to make your systems simple and easy to operate. Which means lots of systems, and it takes time and effort to create them.
Systems also need people to ensure the workers are following the system, as an example, supervisors and managers. Not all businesses have a layer of middle management, and this is another area that will enhance the value of a business.
"Most businesses do things that are technical which require a certain expertise!"
But not all businesses are big enough to create a team of workers with managers. If this is you then work out how you are going to get a manager. Having a layer of middle management between the business owner, the entrepreneur, and the workers allows for something very important. It allows the team, the workers and the managers, to have the knowledge, the mixture of technical skills to do the work and relationship skills to get more work from the customers.
In other words, the team can replace the entrepreneur in the doing of the work, the sales and marketing of the business and the controlling of the business. Which means the business can be sold to someone without technical skills or ready made customer relationships because those things are present, and will continue, in the business.
"Then there are the things that enhance the value of a business, its turnover, profitability and situation in the business economy!"
If you want to sell your business then the first thing to do is to analyse it as a prospective purchaser would. Which can be a bit of a cleft stick as not all purchasers want the same thing. Do you go for glory and lots of turnover, do you build a small but elegant business, do you build an empire? Some purchasers will want a simple one site business. Others will want an e-commerce only business or a business with multiple locations. This all makes it important to think about, not only about what you want from your business, but what a future buyer might want from it as well.
All of this can be jolly confusing, but the good news is you should build your business so that you like it and so that it gives you the income that you need. Which probably means that a potential purchaser will like it too!
Finally, It is equally important to reflect on when is a good time to sell and when is a good time to hold on a bit longer. In fact, it goes further than that because selling a business can be a very emotive thing.
"This means that you have to be sure that you are ready to sell!
So are you ready to give up your business and hand over control of your baby to someone else? Or do you need some help making your business not only attractive to a purchaser but also more attractive and profitable to you? Get in touch with me on 01234 752 566 or click here to send me an email and let's have a chat to see how I can help you.
Until next time ...
If you're looking for a new accountant to help grow your business, do visit www.jvca.co.uk and discover how Jonathan Vowles Chartered Accountants can help you!
I've been an accountant in and for business since 1987 and have a wide experience of consultancy, audit, accounts, taxation and wealth planning work from individuals and small businesses to multinational corporations and charities.
My eclectic interests in growing and developing business span a number of areas … and can be summarised as strategic business advice and tax saving advice.
I have worked with the Chamber of Commerce to deliver courses for people about starting up in business and have lectured about tax for a major accountancy practice and for Milton Keynes College.
I relax by reading fiction and by getting away from the office in a campervan.