What do you need your business to be worth and in what timescale?
If you focus on building business value from the outset you’re more likely to be one of the elite few to succeed.
Reasons for a Business Valuation
- To measure success. Chief Executives of listed companies are judged against their company’s share price and hence the value of the business; shouldn't your success also be judged by business value?
- To help make decisions by assessing the likely impact on your business valuation
- To monitor progress towards your exit strategy
- To assess a fair equity share in return for a cash injection by an investor
- To evaluate offers to purchase the business or to establish a selling price for the business
As with anything, a business is only worth what someone is prepared to pay for it. So, it is important to direct your business strategy and business plan at maximising the value of your business to the people most likely to buy it.
Reasons to buy a business
The most likely purchaser is a competitor or someone wishing to get into your market. A buyer’s motivation is probably one of the following:
- To gain market share through acquisition and benefit from improved efficiency and profitability
- To benefit from a product or service that you already have and your business is known for providing
- To obtain the expertise you have built within your business
Keeping these motivations in mind will help you make business decisions that build the value of your business and help you define your own objectives. It is then easier to check whether new opportunities align with or detract from those objectives.
Small businesses often feel compelled to grasp new opportunities when they present themselves. The result can be that they spread their resources too thinly to succeed at any of them.
It is better to proactively seek out opportunities that align with your objectives and then make sure they’re properly resourced. This is another reason why you need a structured Business Plan.
How to value a business
There are several ways to value a business:
- P & L valuation – applicable generally, but requires sustainable profits
- Assets valuation – applicable if the business has significant assets
- Discounted cash flow – applicable for mature and predictable businesses
- Sector standard – applicable for certain sectors, e.g. accountants
- Entry cost – applicable generally, can be applied to a start-up
These different methods can produce very different valuations; therefore, it is usual to use more than one method to arrive at a valuation.
How Sightpath values a business
The Sightpath service is designed to quickly and inexpensively develop your business strategy and create a business plan to increase business valuation.
The Sightpath Business Development System includes calculations for both P & L and Asset valuations as well as the strategic value of the business to the likely purchaser. This shows you how the value of your business is improving over the period of the business plan. It enables you to assess in advance the likely impact of various strategies or business decisions on your business valuation.
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Please contact us for an initial consultation with one of our Business Catalysts.