Being able to run a successful business, no matter what industry you are in, means that you need to have access to all the facts concerning that business. One of the biggest factors as a business owner is making sure that you know the value of your business. So what determines the value of a business? There are many different factors that need to be taken into consideration when with valuating a business and knowing these factors will make you understand the valuation process a little bit easier.

Purchasing a business is only the first step that is taken into consideration. Unfortunately what you paid to purchase the business may not be the actual value of that business. When determining the value of a business, the following needs to be taken into consideration:

  • Future performance
  • Financial leverage
  • Financial Return Expectation
  • Cash Flow, not profits
  • Deal Structure
  • Asset type
  • Exit strategy

When a valuation is being conducted on your business the valuator will look at all of these aspects. One of the biggest ones that is taken into consideration is in fact the future performance. The reality is, that you need to make your business functional for the rest of the time you own it. Even if your business bought in millions in the past, this will not be taken into consideration during the valuation. Instead the valuator will look at the history of the business only to help determine how it might progress in the future. Furthermore the future performance will also take into consideration the current condition of the business as well as what a future potential buyer could do with the business were you to sell. This is why it is extremely important to get a valuation done to give you an accurate assessment on how your business should be performing.

What else needs to be considered when doing a business valuation?

As your business is being evaluated as a whole, it is important to make sure that every aspect is at its best. During the valuation, every single “asset” will be assessed. This will include any machinery you might use, the condition of any buildings you have and also the area that you are located in. Unfortunately, the area that the business is situated in can devalue the business. When deciding to purchase a new business, look at the area you are buying it in as this could have a huge impact of the value of a business.

Now that you know what will determine the value of a business, you could be asking yourself why it is necessary to do a valuation. The short answer is that it will make you aware of exactly what your business is worth. The long answer is that it can assist you in other important areas. This will include:

  • Loans
  • Tax
  • Sale of the business

Getting a valuation done needs to be handled professionally and The Property Partnership is just the right company to help you. From purchase to sale to valuing property, whether commercial or private, The Property Partnership will be able to assist you. For more information on how The Property Partnership can help you, visit their website