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How much is your business worth?

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How much is your business worth?

By , January 15, 2018
How-much-is-your-business-worth-

Thinking of selling a business? Do you know how much it is worth?

For many business owners, how to value a business remains a mystery, despite most having at least a rough idea of what their home is worth! Taking the time to create an accurate business valuation is not only informative in terms of retirement planning, but will also provide you with some key strategic drivers to increase the value of a business over time.

A business valuation is the result of two key factors: risk and reward. But within these there are many factors to consider, as not all risk and not all returns are created equal.

 

Evaluating risk in selling a business

The most obvious risk is “key-person risk”: how dependent is the business upon the owner/s? What about other key people within the business?

Is the business likely to be affected by disruption? Think of the industry changes to video stores and taxi cabs. Whether buying or selling a business, there are plenty of risks to consider: competitors, economic changes, employee, fraud or corruption, and OH&S, to name a few.

It’s important not to turn a blind eye here; identifying as many of these risks as possible will give you a more accurate idea when valuing a business. As with any investment, the higher the risk the lower the value, but this is certainly true of any privately held business.

how much is your business worth

Looking at rewards in valuing a business

Reward (or return) is also worthy of review. Firstly, reward equals profit. However, not all profits are equal because not all income is equal. A business with ongoing contracted income, which is therefore recurring and predictable, is far more valuable than a business which needs to make new sales to generate revenue.

The combination of risk and reward will drive the valuation multiple. When talking about listed companies this is often referred to as the price to earnings (PE) ratio. This ratio is the key value driver for unlisted companies as well, so it’s worth considering what can we do to drive this multiple higher and thus improve our valuation.

Beyond risk and reward, finding the right buyer is a way to maximise value when selling a business.

Get in touch with us if you want to know how much your business is worth.

 

Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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