As an owner, how do you calculate your business’ value? Establishing a business’ value is not an exact science which can make this process very confusing and frustrating. As an owner, you want to know what the “market value” of your business is which is what an external buyer would be willing to pay. Generally, your valuation is based on a prediction of future cash flows for the buyer, whether that buyer is already within the company or an external party. Plus, a buyer is weary of buying a business that would be unreliable when it comes to generating cash returns. 

Furthermore, for publicly held companies, they have a definitive value, on any specific day, based on their stock price. However, privately held companies have a range of values on any non-specific day as a result of a number of variables. These variables can include the type of buyer, cash flow, risk profile, and business quality. 

Now, if the purchase is completed by a particular buyer that will automatically generate higher business profits, or “synergy,” that buyer is called a strategic buyer who is in a position to acquire your business for more money. Whereas a financial buyer that does not realize synergy effects will more likely pay a straight market value price that is often based on a multiple of cash flow. These multiples vary greatly between industries and fluctuate with market conditions. 

While this is a multi-pronged approached to calculating a business’ value, it is not out of our normal day to day when searching for the right buyer that will get you positioned in the best light to each type of buyer regardless of your industry or niche. Use the contact button to start the conversation around selling your business.