Listed below are the various variables influencing value. There are four basic criteria that affect the value of a business:
If a business is to be sold, the actual reasons for deciding to do this can affect its value. An example a forced sale is likely to drive down the value. When closing down a business, the value with be the sum of its realisable assets, less it’s liabilities. Commonly, the longer you have to sell, the better price you’ll likely receive.
A business that owns property, machinery or stock-in-hand has tangible assets that will have some resale value, which subsequently makes the business easier to value.
Apart from owning office equipment, the average small business generally has little or no tangible assets. However, their intangible assets may have significant value (although often difficult and complicated to value) which include brand value, customer feedback and perception, intellectual property and potential for growth.
Time as a business
The longer a business has been in operation, the better if terms of value as this would normally signify strong cash flow, a strong customer base and general stability.
It’s sensible to combine the above factors when the task of valuing a business comes to fruition. It’s also advisable to try and adopt an ‘outside in’ view when calculating this, as whether someone knows it or not, they may well naturally have a biased view with their business with the true value of the business not being accurate.