Hiring a business broker San Diego is the first thing you need to do when getting ready to sell. The second step is to get a business valuation. The purpose of a business valuation is to help you understand how much your business is worth and to set a fair listing price. In this article, we shall be taking a look at the main factors that affect business valuations.
Business earnings track record
Businesses that generate stable, above industry average earnings are more valuable. This is why your business brokers San Diego will consider your financial records for at least the last five years. The historical trend in your income is what determines if a business is valuable or not. If the gross income has been increasing, it will have a positive impact on valuation. A downward trend, on the other hand, will devalue your business.
The objective here is to determine how much potential for growth a business has. Focus is on the potential of the business to grow regardless of its industry but based on its unique potential. Your business model will also be considered here. If the model has a high growth potential, the value of your business will be much higher.
Just like with real estate, business is all about location too. The location of your business will have a significant impact on its value. This is because you can have an incredible business model but you are in a location that offers little potential to succeed or grow. As a matter of fact, even if your business is not as successful but is in a prime location, the location will have a significant positive impact on the valuation.
Staff and management
Information on your employees will need to be looked at. If your team is weak, it will devalue your business. The same goes for a weak management team. The fact that the success of a business is dependent on the owner or one employee means it is a high risk business and its value will not be great.
Business brokers San Diego recommend some businesses to rebrand before they are listed. This happens when the reputation of a business has been severely tarnished. The goodwill and reputation of your business is very valuable. Overwhelming positive reputation will boost the value of your business.
These are just the main factors that will affect your business valuation. There are many more areas that are considered. Talk to your business broker San Diego to learn more about these and more factors as well as the valuation model that will be ideal for your business.