If you are planning to sell your business, you need to have an idea of its value. So … how do you determine what your business is worth?

To sell your business you will need relevant documentation including comprehensive financials and revenue forecasts, as well as a list of the tangible assets that the business owns such as stock, equipment, furniture, vehicles, etc.  You should also list any other non-tangible assets e.g. intellectual property (IP), client or member data bases, supplier contracts, loyalty programs, websites.  A potential buyer will need to see any relevant legal documents such as leases, permits, registrations etc.

If you need assistance, you should contact your accountant or a business valuation specialist, but here are some of the ways to calculate the value of your business.

  • Asset Value – add up all the business’s assets (allowing for depreciation) and deduct any debts or liabilities.
  • Discounted cash flow analysis – take the annual cash flow of the business, project it into the future and then discount the value of the future cash flow to today, using a net present value calculation.
  • Market value – to determine the market value of your business, you will need to consider the industry you are in as well as the level of your sales; the prevailing economic conditions; your location and what a similar business in your industry may be worth.  You can find industry data from the ABS to help you.
  • Return on Investment (ROI) – you can either use your business’s net profit to work out its value, either based on a selling price that you have in mind (ROI = (net annual profit/selling price) x 100) or a selling price based on a ROI that you determine (Selling price = (net annual profit/ROI) x 100).
  •  Entry Cost Valuation – this is based on how much it would cost to start the business from scratch. Set up costs could include equipment, stock, furniture, marketing, domain names, etc.

Need more info?

How to value a business

Valuing a business

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