Determining Your Business Value

You’ve taken the first step in maximizing the value of your business.

Key Factors in determining the value of your business

The best thing that you can do when determining the value of your business is to take an objective look at your business by stepping into the buyer’s shoes and ask “if I were interested in buying a business what would I want?”


The top of the list is usually profitability. Aside from very unique situations, buyers are looking to invest in and grow a business and are not willing to buy something that is going to lose them money.  Determining profitability requires going through a recasting process to determine the true earning power of the business without discretionary spending or large one-time expenses.


Next the buyer is going to assess risk. How healthy is the economy? How health is the industry? How healthy is the business? Anything that can be done to minimize risk in your business is a worthwhile undertaking. If your business has a history of litigation, this increases the risk to the buyer and they will expect a higher return on their money to mitigate the risk, which translates to a lower sale price. Industries vary in their risk profile, so businesses in some industries are seen as riskier investments than others.


Next a buyer might look at the management team, if your business has management in place the transfer of ownership has a lower risk profile than one without.  For a business with management in place, the marketability of the business increases because a new owner doesn’t necessarily need to know how to make the product or provide the service, they rely on the management to oversee the teams and the new owner can focus on oversight of key individuals and marketing the business.

There are a tremendous number of factors that go into the valuation of a business and considerations vary from business to business and industry to industry.