01 May How much is my business worth?
As a valuer this question takes up most of my time and thought process, the flippant and most common response from people is “It is worth what someone is willing to pay for it!”. This is accurate but not particularly helpful in assessing the value of your business.
Different types of business attract different types of buyers with a range of aspirations and access to finance. Business owners also run their businesses how they wish it to fit around their lives or other interests so all this needs to be taken into account.
For businesses that rely on pedestrian footfall and prominent locations the difference between one street and another can be huge for example, retail, pubs and restaurants are in this category.
Others rely heavily on the owner’s involvement or “goodwill” so on exit some of the value of the business will leave with the owner.
For the reasons above plus many more the correct way to value your business is not a % of the turnover or sales, this does not reflect the profitability or the individual nature of your business and more importantly it does not reflect the way potential buyers behave in assessing your business.
The most accurate way to value a business within the retail and leisure sectors is using a multiplier of the adjusted net profit. This takes all costs and revenue that are personal to the current owner out of the equation and assesses the net profit of the business if run by an average competent operator.