No matter what kind of company you might have, you have surely put a lot of time, effort, and capital into it. And no matter the level of success of your company, it will have a certain worth that needs to be matched if you are wanting to sell it. And even though many people sell their companies every day, not many of them know how to properly calculate the worth of their company. This is, of course, quite a complex thing to do, but there are certain tips that can help you find the most accurate number.
If you are in the process of selling your company, but you do not know how much it is worth, read these 7 useful tips that can help you do that.
1. Check out the worth of other companies
The easiest way to estimate your company’s worth is to compare it with another one that is similar to yours. If they are selling similar products to yours, or are providing the same services as your company, and they are of a similar size, it is likely that their worth will be similar as well. This is, of course, not the most accurate representation of your company’s worth, but it can give you a starting point. From here on, you will be able to narrow it down to a more precise value.
2. Use online calculators
The age of technology has brought us so many useful tools to use, even when it comes to things such as determining the worth of a business. You can actually get an accurate online business valuation from simple online calculators. These valuations are very precise, as they are based on real-life data points and figures. They can provide you with a highly accurate valuation of your business’ worth in an exit. So make sure to check them out, as you will save a lot of time and resources by using them.
3. Analyze comparable transactions
Just as you can compare the worth of your company with other companies, you should also analyze comparable transactions. Prioritize transactions that are not older than 5 years. If possible, focus on the ones that have occurred in the last 2 years, as they will give you the highest accuracy. Companies that are in the same sector as you will have a similar business model as well as a revenue generation model. If you manage to find a few companies similar to yours, focus mostly on the one that has the same models as yours does. This will allow you to get the most accurate numbers.
4. Utilize terminal value
Terminal value is the value of a company at a future point in time. It goes beyond the explicit forecast period and assumes that the growth rates of all future cash flows will stay consistent and stable. This value is usually a large portion of the total assessed value and can therefore help you in this process.
5. Talk to possible investors
It might be a more sneaky method, but you might be able to find out how much the market sees your company’s worth from talking to possible investors. Before you officially start the procedure, try to talk to someone interested in your business, as they will give you a clearer picture of how much you will most likely get.
6. Be realistic
Even though most people believe their company to be worth a lot, it is still good to be realistic. As buyers will try to negotiate, you should not give the lowest worth possible. Stay optimistic, but do not overprice, as you might have trouble finding someone who is willing to pay an overpriced exit value.
7. Know your business
Even though it is common sense, many people do not think thoroughly about their company’s place in the market. If you want to be able to sell your company for a proper value, you have to be aware of its true worth. Buyers who know about your space and its existing capabilities will surely match the price you are offering if it is realistic. Try to put yourself in their shoes, take every aspect of your company into consideration, and think of what the true worth of it is. Think of your past successes, the capital invested in your company, as well as possible future successes. All of these play a major role in a company’s value and should be considered for its exit worth.
Knowing the exit worth of a company is a complex issue, but is certainly something that can be estimated. Remember to analyze comparable transactions, as well as comparable companies. Know your business and be realistic of its true value. Do not overprice it, but do not underestimate its worth either. And of course, to make the whole process easier, use those online calculators!