Tweet

Top Tips for Factors Affecting The Valuation of Your Business

Guest post by: John Ryan

Article Overview: Valuing a business is very subjective and at the end of the day what you sell your business for is what someone is willing to pay for it. But there are guidelines that enable you to estimate what your business valuation is. This article lists some of the main factors that affect such valuations.

Top Tips for Factors Affecting The Valuation of Your Business

Valuing a business is very subjective and at the end of the day what you sell your business for is what someone is willing to pay for it.

You should always consult with a business accountant or business broker preferably one that has experience in selling businesses in your sector.

At the end of this article I have given some indication of some of the multiples that are used in the industry but the following include a number factors that have a bearing in determining a valuation:

* Timing – Sectors become hot when one or more players are looking to increase their market share and this leads to a business being sold for a multiple of what they would normally get. Recent examples include Radio Stations, Security and Pharmaceuticals Companies.

* Proximity of competitors

* Concentration of competitors in the overall marketplace

* Foot fall of premises

* Population of area surrounding the business

* Economic demographic of the area if a retail/service based business.

* Depreciation of transport fleet if appropriate

* Capital based assets

* Stock levels

* Size of premises and whether it is leased or owned by the business

* Growth trend of revenue over a specified period of time

* Renewal business booked and/or order book level

* Staff- are the staff that are going with the business knowledgeable enough to run it and understand all the processes involved? Do they have the essential connections to retain customers, or are the management / key staff leaving the business when sold?

* If the business is a web-based concern, then the brand awareness is a critical factor. This includes the number of back links to the domain and SEO (Search Engine Optimisation).

* Exclusivity contracts; is the business located in a shopping centre where it has exclusive rights. For example, if you set-up as a newsagent in a shopping centre and no other newsagent can open in that shopping centre. These contracts up the price of a business significantly.

* Whether you make or sell niche products, these can often command a higher premium if these products are at the high end or there are only a few in the market place nationally.

* If the business has patents or exclusive licencing rights.

* If reselling an existing franchise territory, costs of fees to master franchise if any.

* If the company is a manufacturing concern with a strong product line or innovative future product pipeline.

* Pending litigations

* Excessive debt ratio

* Pensions, if there is a pension shortfall that will need to be filled- this will decrease the attractiveness of the business.


The following is an indication of the valuations used for certain sectors but can very greatly based on the above:

* Manufacturing sector tend to go for between 5 and 6 times their net profit

* Retail based businesses tend to be valued at a price factor of 20 weeks turnover

* Pubs: are valued on the last previous 12 months turnover

* Professional based services are valued on the last previous 12 months turnover paid over a defined period of time.

For more information on valuations contact: johnryan@thebusinessshop.ie // johnahern@thebusinessshop.ie

Related Articles
  Business Value
  FIVE GREAT LESSONS FOR ENTREPRENEURS for Standout Pitches TO ACCESS ANGEL INVESTORS
  Sleeping Around
  Importance of a business valuation when selling your business
  Why Small Business Owners Are Valuing Their Own Business and Avoiding Business Brokers

Article Tags:



Related Forum Posts
Business Tips - How about: Tips for managers to handle employees more effectively? Tips on how to deal with difficult customers? Tips on how to deal more effectively with suppliers? The only three I have in mind right now, but will try to come up with something else. Chris
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Re: The 3 Factors That are Limiting Your Productivity - Hi Evan, Thanks for a great article and video on 'The 3 Factors That are Limiting Your Productivity'. I think that no matter whether you are self employed like myself or a CEO with staff, it is so important to manage your time so as to maximize the benefit to your business. Your expression Eliminate; Automate; Delegate is easy to remember and will certainly stick in my mind. There are many good business ideas out there but they will ultimately run into difficulty without proper planning and execution so these tips will certainly help. I have also left this comment on the article and will place a link to it on my blog. regards, Mal.
Exclusive: Interview with Results - Hi Forum Members, I'm helping start up a Business Coaching and Consulting company here in Toronto, Ontario, Canada (a Subsidiary of RSC Business in Los Angeles). As a Research and Development Intern I am required to practice my listening and interview skills by surveying Small and Medium Businesses on thier Business. This Survey is designed by RSC Business to also assist the Business being interviewed more insight into their own business. I am looking to interview about 30 businesses across North America over the span of 3 months. At the end of these interviews I will be publishing a report of the results and they will be made available for free to the Interviewees. The Report data will include responses from a minimum of 100 interviews. I would like to extend this opportunity to members of the Forum. If you would like to have this short 20-30 minute interview conducted on your Business and you reside in North America please send me an email or PM. Please contact me at andy[at]jvprosperity[dot]com to arrange our interview and to get free access to the results when they are published.
Re: HOw to market a B2B consulting company - [quote="zohahunt77":428owzbi]Hi, I was wondering if anyone can tell me the difference between B2B and B2C. I don’t know about b2b marketing but I have done marketing so know things about it. I will suggest you to take online services which will spread your business all over web network. Online marketing is the best way to market any business.[/quote:428owzbi] B2B = Business to Business - You are marketing to other businesses. B2C = Business to Consumer - You are marketing to consumers.


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Work at home Opportunities for the Disabled

Creating a Better Place to Work

Leader's Success Secret: Celebration

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.