Are you getting ready to sell your business? This is the stage of the game where you will need to find out its true value. The figure you arrive at will be the basis of the total price that you ask for. Here are the best methods that you can use in order to determine the true value of your business.
Make an Accurate Tally of Your Assets
Say you own a pharmacy, the first thing you will need to do is perform an accurate pharmacy valuation. You can do this by adding up the total market value of everything that your business owns. You will then subtract all of your outstanding liabilities and all other debts. The figure that you are left with will be your total value.
Find Out Your Total Revenue Amount
Your next step will be to determine the total amount of revenue that your business brings in on an annual basis. For example, you can compare this year’s revenue against your figures for the last few years that you have been in business. You will then arrive at an aggregate from which you can determine your average yearly revenue.
You should then compare this average with the average that other businesses in your area are generating. Are you above or below or strictly on par with your rivals? This total figure will help you determine just how much you can ask for your business. It can save you a lot of time and effort when you are negotiating with a potential buyer.
Find Out Your Price to Earnings Ratio
The next step should be to discover your price to earnings ratio. This will be the figure that will represent your best estimate of your earnings for the next couple of years. The idea will be to represent this figure as accurately as possible so that you can arrive at the highest possible total amount.
For example, a typical price to earnings ratio is 15. This represents the number of years that you have been in business. If your estimate of your earnings for the next few years is $200,000 per annum, the figure that you arrive at should be something along the lines of $3 million. This is the price you should be aiming to collect.
Make a Discounted Cash-Flow Analysis
It’s a good idea to make a complete cash-flow analysis for your projected revenue. This term describes a formula whose purpose is to analyze the annual cash flow of your business. Once you arrive at this number, you then project it a few years into the future. This part of the equation is similar to getting your price to earnings ratio.
However, once you have the figure to hand, you will then need to subtract the value of this projected future cash flow by backdating it to your current figure. This is done using a calculation known as net present value. Instead of doing it all yourself and possibly getting it wrong, you’re better off using an NPV calculator on the web.
Take Note of Your Physical Location
What if your business is not only based on the web but has an actual physical location? If this is the case, you will need to factor this in as a selling point. This could be a tangible asset that could raise the sale price of your business. It’s a good idea to conduct research on the value of other businesses in your area.
Suppose a potential buyer is looking to acquire not only your pharmacy but other businesses in the surrounding area. If this is the case, they may even overlook the fact that it is less valuable than some others. Desirability for their purpose may get you your price.
The Time to Value Your Business is Now
When it comes to valuing your business, you need to put your best foot forward. Now is the time to get a fair and exact valuation for all of your existing assets. This will be the price that you will go to market with when it comes time to make the sale. You want to be armed with all of the relevant info so that you can get the best deal.