Entrepreneurs put a lot of thought into their business plan and painstakingly establish each step of the process to ensure success and longevity. Before they open their doors for the first time, business owners typically have a good understanding of their overhead costs, payroll expenses, and expected profit margin. Unfortunately, few owners are as well prepared when it comes time to sell their business and have little understanding of how to truly value their business.
Determining Fair Market Value
Your brand is priceless. Likewise, the physical, mental, and emotional work that built your business cannot be bought. Still, these intangible factors should be considered during the business valuation process.
Before you find yourself too far down the path to selling your business, realize that help is available. Experts in the specialized area of your industry can provide insight and help you through the process and help ensure a successful transaction.
Have you considered how your customers influence the market value of your business? The years spent managing relationships and building a loyal customer base have intrinsic value that should be accurately reflected in your asking price.
With a proper upfront contract, your customers will continue to patronize the business regardless of the new owner. The value is clear, and must be outlined for the potential buyer.
Just as customers create and identify with your brand, employees also lay the foundation for the net worth of your business. Salary and total compensation packages might be eligible for consideration in your business valuation. Even if the current employees will not be transitioning to the new company structure, the training investments and payroll expenses can be factored into the overall value of the company.
Physical inventory is an important part of a business valuation. Vendor relationships and assumed discounts can easily be overlooked. Leverage the trade agreements you have accumulated and founded over the years by including their value in your bottom line. A thorough valuation will ensure that tangible assets, accounts receivable, and other items of value are considered when determining the fair market value of your business.
In just these three simple examples, you can see how the value of your business is heavily impacted by relationships. For more than three decades, Appraisal Economics has assisted businesses just like yours. We are here to help.