How do you value a business?

A question that many different business owners ask themselves when they think it’s time to move onto a new venture or better still when it’s time to retire. So how do you value a business?

There are several different factors to consider which could positively affect your business value, which a number crunching calculator does not tell you.

So where do we begin?

A couple of pointers to give you guidance on your business worth.

• Can your business show a consistent level of performance for the last at least 3 years?
• Does your business have a good name in the marketplace?
• If a potential buyer had to do a little market research on your business, what would they find?

The strength of a company’s brand can affect the value (this is varied from industry to industry)

What does a potential buyer look for when looking to invest into a business?

• Strong brand name
• IPR (Intellectual Property Rights) Patents, trademarks, copyrights, Trade secrets, these are all valuable assets to the company
• Repeat business
• Management team

A top management team is the making of a strong a business. This will not go unnoticed to someone who is looking to get involved. All of the above would be attractive to a potential buyer, it shows steadiness, growth and a long-term benefit in acquiring this business.

Several factors come into play when a buyer looks at making an offer such as:

• The points mentioned above
• A multiple of the EBITDA (this will vary from industry to industry)
• Surplus assets (this is typically cash in the bank and property if applicable)

A 3x multiple of EBITDA is a very standard and common multiple paid for businesses with a turnover above £500k with an EBITDA also of £100k+.

Below £500k revenue you would be looking around 2x EBITDA as a rough guide and multi-million-pound revenues with EBITDA of close to £1 Million, a buyer would pay 4x EBITDA in general and to achieve even stronger multiples than this such as 5-7x, those businesses will be achieving an EBITDA of circa £2 Million+.

In conclusion when deciding to sell your business talk to the experts and get a professional guidance on value before rushing into a transaction.