Business valuation: the numbers are only part of the outcome
How much is your company actually worth? An important question when you want to sell your business. The earlier you have a clear understanding of your company’s value, the more time you have to focus on improving the value-driving elements.
A combination of factors
Selling your company for the best possible price without pricing yourself out of the market? Determining the value of your business is not something you do “just like that.” A valuation is not purely a mathematical exercise, emphasizes valuation expert Dennis van de Kamp. “It involves a broad analysis of your company, compared to the market and its developments. How do those affect the value of your business?”
Realistic future scenarios
An external party is often better able to assess to what extent your sales story and its justification hold up, Dennis frequently observes. “That fresh perspective is crucial when developing realistic future scenarios. Sometimes it turns out to be better to wait before selling because certain aspects deserve extra attention. This way, you get time to put things in order and increase the value of your company.”
Conducting an indicative valuation
Having an indicative valuation performed is a good starting point. There are different methods for this. The so-called Discounted Cash Flow (DCF) method, for example, does not look at accounting profits but at the so-called free cash flow. It also takes future investments and changes in working capital into account. This creates a clear picture of the expected cash flow a potential buyer could earn from the company in the future.
Besides your company’s financial figures, future developments in your market also influence the selling price. The Discounted Cash Flow method takes this into account as well.
Comparing with other market transactions
Although this is a good method to determine your company’s value, the rule still applies: one valuation is not a good valuation. Therefore, always compare the results with valuations of comparable companies and/or market transactions, Dennis advises. “Ideally, the established value of your company aligns with what we see in the market. But it can also be higher, for example, if you use a more efficient production method.”
Below average market value
It can also happen that the established value of your company is below the average market value. This often relates to a higher risk profile. As an owner-director, for example, you may have so many responsibilities that business continuity is at risk when you leave. Or your revenue depends heavily on just one customer.
According to Dennis, the valuation outcome provides many tools to increase your company’s value in such cases. “You could decide to broaden your customer base and secure new contracts. You might also invest in expanding your management team, so the company becomes less dependent on you personally.”
Getting your administration in order
A potential buyer will also be very interested in all financial figures and forecasts. The earlier you start the valuation, the more time you have to get your administration in order and gather the correct figures. From annual accounts to data on working capital development, from an analysis of future investment needs to information about your customer, supplier, and staff base, as well as your premises.
Start early
Gathering all this information can be a time-consuming process. The better and more complete the input, the more accurate the valuation. And the earlier you have a clear view of your company’s value, the more time you have to focus on improving the value-determining elements, Dennis emphasizes. “The greater the chance that you will be able to sell your business later at a good, realistic price.”
Curious about what your company is worth right now? Dennis and our other acquisition specialists are happy to talk with you.