Blog
How to maximise the value of your business
July 6th 2011
Whether or not you are thinking of selling your company in the next few years, it is important for the directors and shareholders to understand how businesses are valued so that informed and timely decisions can be made.
In this month’s blog we explain why an understanding of the factors involved in the valuation process can help shareholders to maximise their eventual sale proceeds.
There are many ways of valuing companies. Often the nature of the business or the sector in which it operates can dictate the valuation approach, although the most common method is heavily linked to a company’s profitability. As you may expect, the more profitable the business, the more it is worth. However, this is not the whole story.
Wide-ranging factors affect a business valuation – many of which are subjective and therefore difficult to quantify. Others, such as changes in legislation, the general economic outlook and market trends, are completely outside the control of the shareholders. However owners can influence the valuation by taking early pro-active decisions in key areas which can not only strengthen and boost a company’s desirability, but can also ultimately increase its worth. Factors which can positively influence the value include a
•Strong management team with a clear vision of how to take the business forward;
•Developing a leading product , service or brand;
•Securing future work – contracts or written orders;
•Implementing a creative marketing strategy;
•Continual product development; and
•Operating in a niche market or developing a product which sits in a niche market.
Although it may not be feasible to implement all of the above – any steps taken to differentiate a company’s products or services or attain a competitive advantage – will enhance its attractiveness, saleability and, in the long term, its price.
Irrespective of the myriad of internal and external influences, the calculated value of a business is only a starting point. Ultimately its true value lies in what a buyer is prepared to pay for it. It is therefore always important to take a step back and think about what action could be taken now to maximise the chance of obtaining the best possible price for your business when you do come to sell.
