Whether you are looking to sell or just starting out, it is vital to know the true value of your business. The future value of your business is something that might not have crossed your mind in the early stages but is important to bear in mind.


Firstly, you must look at the value of your business assets, incorporating all equipment and taking into account anything you would need to buy if you were to start your business from scratch.


You must also of course take into account the income of the business, and approximate the yearly revenue stream. Bear in mind that revenue is not always the same as profit and when valuing your business you must take into account that any buyer will have to recoup any profit lost. It is also important to estimate future earnings as they will certainly count towards the value of your business overall.


Essentially, a business is worth whatever someone is willing to pay for it and in turn what you would be willing to sell it for. You may not know the true value until the business is placed on the open market but there are a couple of simple and common methods available for valuing your business. Whether or not you are planning to sell in the near future, valuing your business can help you maximise each aspect of your business. Valuing your business may also help you pinpoint possible future issues.


There are two most common methods of valuation:


Valuation based on sales:


This model determines the value of the business by multiplying annual sales by a determined multiplier. This multiplier is subjective and will depend on your specific business, as there will be a standard based on the business type that will then be adjusted to suit your specific business and cause it to either be increased or decreased.


Valuation based on cash flow:


This model is based on your company’s ability to generate a profit. The profit will be projected over a number of years to calculate the businesses overall value. When the projected profit over a fixed number of years has been projected, interest rates must then be taken into account and removed from the final figure


It might be wise to try both models in order to find the best option for your business and to bear in mind that these valuations are always subjective.