So, you have spent so many precious years and invaluable labour into building a company, and today you think that the day has arrived when you must bid farewell to your business. Well, a majority of entrepreneurs come to such a situation when they believe they are out of a passion for their business or they might not be able to contribute any newness for the further growth of the organisation.
As a result, they find that selling their business to like-minded people who will pay respect to the brand equally as you do is the best possible way out. And to make your dream of selling your business potential, you must consider a few factors. And most importantly, always find out the actual valuation of equity shares in your company.
Why is Business Valuation important?
First of all, the more rush you make, the lower the benefits you get. What we mean by this is that the more you will show your client that you are eager to sell your business at the earliest, the worse the negotiation would become for you. The chances are high that your client will attempt every psychological trick to get you to step into the trap of selling businesses for a price, which is lower than its market value.
It is the reason we always recommend that you consider conducting a business valuation audit. That will help you figure out the exact valuation of equity shares, and as a result, you can be sure whether someone is proposing a fair price or a lower number.
But how do you value your business before selling it for a profit? Read our comprehensive guide as follows:
Tally the company’s assets value
You can add the value of each and everything that the business owns. The list must also include all the inventory and equipment, while all liabilities and debts should be subtracted. The total value of your business’s balance sheet is a starting point when it comes to determining the company’s worth. However, please note that the market might worth a lot more than the value of its net assets. In those cases, the amount of earnings and revenue should be considered.
Another way to determine the total worth of your business is to consider the revenue it generates annually. Calculate that value and then figure out through a business analyst or stockbroker, how much a typical market in any particular industry should be worth considering the money your company generates. For instance, in most cases, the value of the organisation typically is approximately two times the amount of your annual sales.
If you are on a lookout for a more relevant measure, it is the multiplication of your company’s earnings, which is also known as the P/E (price-to-earnings) ratio. To do this, you will need to estimate the total earnings of your company for the upcoming few years. For instance, if your organisation’s P/E ratio is 15 while the projected earnings show INR 2,00,00,000 a year, your company might be worth around INR 30,00,00,000.
Look beyond formulas
Don’t entirely rely on estimated projections to determine the value of your business. In many instances, the geographic location and the area’s economy can also have an impact on your company’s valuation.
It seems that now you reasonably understand how to value your business so that you can get the right price for the hard work you have done over the years. And you also decide the right amount because it is ultimately your dream, and it is your legacy that you wish to pass on to a fresh set of hands. Don’t make a mistake of selling the company by conducting a valuation process. If needed, hire someone who can do the job for you.