Business Valuation Blog | Understanding Buying / Selling a Company

What benefits come into play when valuing a business for sale purposes?

Posted by Business Valuation Specialists LLC on Dec 13, 2018 12:08:21 PM

valuing a business for sale purposes

When you're considering selling your company, it's hard to know how you should prepare it for that sale. Should you invest in one particular area or another to increase the return on your investment? If you make a change to one area of the business, will you positively or negatively impact the value of another aspect of your company? Are there any areas that you're really missing out on that will have a detrimental effect on your company's final sale price if you don't fix them? This is why valuing a business can be so beneficial for entrepreneurs who are getting ready for a sale. Here's a glance at the different benefits and why they're important to the sale process.

What benefits come into play when valuing a business for sale purposes?

Let's start by looking at how your company is performing. Are there specific areas in your company that need to have improved processes and practices brought into effect to improve performance? Perhaps you've got a lot of bad debt in your A/R department that can be handed to an outside collection agency. Maybe your equipment is in excellent condition, but your infrastructure needs serious improvement to protect that investment.

Next, let's consider how your company stacks up against the competition. Where are you strong and where are you weak? Competition may include companies in your region or companies that offer similar products or services to your industry. Does your business have a reputation for innovation, research and development? Maybe you offer strong customer service. Whatever it is that makes your company stand out, that helps build your business' value. But how should you develop it?

What about your industry as a whole? Does your brand stand out as a leader, building a strong market share on name alone? That brand is worth something. Is your industry growing as time rolls forward or does it lack the leadership and innovation to continue into the next era? These aspects will also impact your asking price. Are there areas where innovation within your industry will make it stronger, allowing your business to take a position of leadership, improving its value and overall market share in the industry?

It's also important to not forget about the effect of the market on your final asking price. Though knowing exactly where the market is heading is impossible, experienced appraisers have been through enough cycles and studied the financial data from enough companies to be able to make an educated guess on whether your market is heading into an upswing or a downswing. This helps give you a timeline with regards to whether you need to work quickly to get out or if you should weather the storm until things improve.

By valuing a business, you're getting a deep look into not only how your company operates and produces value, but also how it stacks up against other businesses and the industry overall. When you work with a certified business valuation specialist, you know that the information they provide is based on years of education, experience and expertise in your industry. Getting a series of valuations as you prepare your company for sale helps give you a solid guide through the process, maximizing your final asking price and profit.

Topics: valuing a business for sale purposes