Do You Know What Your Business is Worth?

The truth is, there is no one set formula for calculating the worth of a business.  It all depends on the company.  So, what factors go into measuring the worth of a company?  Businesses are a great financial asset.  If you know the worth of your company in the current market, then you will see that you have some great options when it comes to retirement or changing careers later in life.

The first thing that you will want to do is learn more about who actually purchases businesses.  There are two different types of business buyers.  Those are the financial buyers and the strategic buyers.  Financial buyers are basically private investors that buy businesses so that they can get a return on their investment later down the road.  This type of buyer will crunch numbers when it comes to your business and they will look for ways that they can create more revenue so that they can flip the business for a profit later on.

Financial buyers will take a look at the size of the market to ensure that there is actually some room for growth.  If there is not much room for growth, then chances are they will not want to buy the business.  This is because they see it as being limited.

Strategic buyers will usually buy a business not only for the fact that they can get a profit out of it, but also because of the other operating benefits that come along with it.  This type of buyer will buy a company that can boost their market share.  Sometimes companies that are losing money are at an advantage if they are in a great location, have patents, or have contracts set in place that can be used to create new revenue.

Sometimes, well established public relations businesses are bought out by advertising agencies because they want to be able to reach out to their clients and be able to sell them other types of advertising.  This is sometimes referred to as synergy.

Business buyers will always look for the positive attributes of a business before they purchase it, but they will also guard themselves against the negative attributes.  They will not want to buy a business if they feel that it is just going to plummet to the ground right after the purchase.  Sometimes, if the founder of the business is no longer involved, the business isn’t worth as much.  This should never be the case in entrepreneurship.  It should be more about the business, rather than the founders and the owners of the business.

Here are a few tips to help you increase the worth of your business:

  • Focus your marketing to actually help out the reputation of the business rather than the owner or the founder of the business.
  • Look for long term contracts for the company to add to the worth of the business.
  • Train the employees to build the business up.
  • Look for ways to build your business up by using customer lists, subscriptions, branding, and other services.
  • Do your research to find new innovative products and services, or consider expanding to larger markets.

When it comes to appraising your company, it is important to remember that a company’s worth is generally two times the amount of the annual revenue, plus the value of all assets.  If your company’s worth is not where you would like it to be, then there are things that can be done.  Just remember, entrepreneurial happiness is something that you really cannot put a price on.