Business Valuation Blog | Understanding Buying / Selling a Company

Valuing a Growing Company: Get the Most for Your Business' Potential

Posted by Business Valuation Specialists LLC on May 31, 2017 1:07:00 PM

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When you've worked hard to position your business for expansion, it's really difficult dealing with people or organizations that don't value that hard work. When you need to get more for your business' potential, you need a partner who can ensure that you're getting everything your business is worth, both now and in the future. Valuing a growing company can be a difficult prospect, but it is well worth the effort involved when it's time to sell your business, merge with another company or partner with other concerns in your area or industry.

Valuing a Growing Company: Get the Most for Your Business' Potential

It could be caused by a new market expansion. Perhaps there's just more demand in your sector than there has been in the past. Commodity prices could be skyrocketing, making prospective buyers come out of the woodwork. Whatever the reason, your company is growing and you want to realize the full potential of that growth. Where do you go to make that happen?

Many business owners take a few specific directions when trying to value their growing business. They discount the value of that growth, settling for a low selling price or otherwise receiving less consideration for their company's growth potential. They overestimate the growth value, leaving the company to grow stagnant while opportunities pass them by. The third option is to get a company valuation from a business appraiser who has experience in that particular industry and with growing companies in general. But what does that appraiser base the company's value on? Here are a few areas they typically consider:

  • Future Earnings: How much is the business projected to earn over the next few years? If it's significantly higher than in the past, that needs to be taken into consideration when determining business value.
  • Market Conditions: Is the market hopping, with every business within that sector seeing strong returns? If so, how long is this trend expected to continue? Much like the housing bubble and the dot-com crash, many trends may change, though strong companies that are well managed through a down turn may expect to see a stronger market share in future upswings.
  • Innovation in the Industry: Is your business seen as a leader in innovation or does it create the same basic items or services that every company across the industry seems to produce? If you have a history of innovation, it can be expected that your growing company will continue to see strong growth, fueling a higher value.
  • Goodwill and Reputation: Does your business have a reputation for excellence in the industry? A good reputation can make a huge difference between average one-time sales and loyal, committed customers who come back for your services and products time and again. Though today's shorter attention spans make this process harder, it's an excellent indicator of future potential.

The work you've put into your business to prepare for expansion and take advantage of opportunities as they've arisen deserves to be recognized and rewarded, and valuing a growing company is a great way to document that growth. This also lets you to take advantage of future earnings beyond what normal business operations may provide, allowing you to benefit from the course you've laid in place for your company that will lead to its continued future success. 

Topics: valuing a growing company, valuing a growing business