If you’ve decided that it’s time to sell your business, perhaps because you want to retire and don’t have any heirs who wish to take over for you, you need to know what the actual value of that business is. There are a lot of different factors to consider, but you need to have an idea of your asking price before you begin negotiations.
How do you get to that valuation? Here are a few different ways business owners may decide to do this.
Consider your sales numbers for a given year
First of all, you can look at the sales numbers for the last year and get a rough value of the company from that. Many experts agree that a business is worth roughly twice as much as its sales. If you had $500,000 in sales last year, you might be able to ask a million dollars for your business.
Consider the assets that the business owns
Even if the business isn’t making any money, it may still have value in its assets such as company cars, a warehouse, offices, and any machines you use daily. It may also include the inventory of products you still own, which you can sell for a profit.
Look at the trends
Try and determine what your business will earn in the future. If your earnings have doubled every year for the last five years, it’s safe to assume that they may do so again. Remember, prospective buyers are considering what they’re going to earn in the future, so they may be willing to pay more if they think those numbers will keep increasing.
No matter how you get to the valuation, make sure you carefully consider all of the legal steps needed to sell your business to a third party.