How to create value in the business
If you want to build value in your business to one day be able to sell? Keep these tips in mind so that you instantly can create real value in your company. In the wizard includes how sales and profit play an important role for your company’s value, and how the right employees and protected trademarks can play an important role.
Increase sales
The higher the turnover, the higher the value. In most cases larger companies with hogher turnover is more valuable thanks to higher sales. Increase sales through wider product range, increase sales, expand into new markets, develop new products and / or increase resources for sellers.
Increase margins
Reduce costs and check over your productivity to improve margins. Margins increase the value of the company. A good result gives a higher price for the company in the event of sale.
Right employees
The right team is the key in the valuation of companies. Creating a core of employees of the highest quality, and remember that it is not possible to build world class companies without world class employees. Board members with the right experience can also increase the value of the company.
Long-term contracts
Long-term customer contracts increases the value of your business, and it is also relevant that your customers is stable. Negotiate to you a favorable lease and flexible contracts with your suppliers.
Protected trademarks
Strong and protected trademarks and other intellectual property rights can have very large values. To protect the company’s brand is always step one.
Orderliness
A prerequisite for someone to be interested in your business is that everything is in order. Financial reporting is key, as well as the structure and processes.
What is your business worth?
It is almost impossible to evaluate small companies, it all depends on what the buyer is prepared to pay. However, the following simple model, you can get an indication of your company’s value.
- Start with the annual profit
- Adjust.
Since you as entrepreneurs often want a low result as possible, to avoid paying unnecessary taxes, you might have adjusted earnings by reinvesting the potential gain.
Earnings in this calculation can be adjusted up or down with respect to the adjustments you made in the financial statements. - Summarize
Summarizing the profits from the three most recent financial statements and share the total by three. This gives an average annual return. - Multiply
What your business then it is worth depends on a number of factors. It is different values from industry to industry, and it may depend on how difficult it would be for someone else to start an equivalent company. If you run a small business with low startup costs, the risk is that it pops up a competitor, making the valuation is lower. This type of business is usually worth 1-2 years’ profit. If the company does require more time and capital to start up, it is often worth several annual profits.
Other factors affect the value of your business
Other factors also affect the value of your business.
- Funding
For smaller businesses, the buyer rarely have the capital to buy the company in cash. Is it difficult to get loans, that also affects the value of the company. - Agreements
Companies that are stuck in long, non-favorable contracts are worth less because it involves the risk of the purchaser. - Assumed growth
Companies with strong growth may be valued differently, for example by taking last year’s winning three times, before last year’s earnings and earnings times two times before that one. Then divide by six. This will give you a value for the most recent financial statements prevail.