So, you have decided to sell or buy an existing business, but you don’t know how to evaluate it? If the answer is affirmative, you should know that there is no universal valuation method. Actually, there are a few valuations methods that have proven to be effective and it’s up to you to select the one that is appropriate for your situation. Of course, you can always use a combination of methods in order to make sure that you are doing the right thing.
One of the most commonly used methods of valuation used for business for sale is to conduct thorough research of the current situation on the market and the industry. Assessing a business usually depends on the industry where the business belongs as well as the current marketplace value of businesses that have similar characteristics. There is no need to play the guessing game when there is already information available for other businesses. Use the Bureau of Statistics or some other relevant sources to analyze statistical data. Don’t forget that you should compare businesses with similar characteristics within the same industry.
Next, you can use the ROI method. In case you didn’t know, ROI stands for Return on Investment. The ROI, in this case, is calculated by dividing the net annual profit with the selling price and multiplying it by 100. An ROI of around 50% is acceptable for most sellers and buyers. This is a deal in which both sides will be happy – in other words, it would be a win-win situation.
In some cases, it’s the smartest idea to rely on the business’ assets to find the real value of a business. While doing these calculations, you should include both physical assets and intangible assets like intellectual property, business goodwill and more. It is important to be precise and realistic when doing these activities.
So, in case you are trying to sell your business or you want to buy one, you can use one of these three methods to evaluate the business and find the real price. As a seller, you should always look for things that can increase the price of your business and as a buyer, you should be careful and check all the possible downsides of buying a certain business. It’s crucial to avoid overpriced businesses with no real perspective ahead of them.
— SMERGERS (@SMERGERS) 17 de julio de 2018