The worth of your business is a measure of success. No matter how large or small your business may be, you want to know that you’ve established yourself in the value of your business. It validates your efforts and all of those long nights you’ve spent slaving away to move your business into the future.
If you haven’t checked in a while, you might be surprised to learn how much your business is worth. It doesn’t necessarily matter whether or not you intend to sell the business at some point – what matters the most is that you know that you’ve created something worthwhile, and knowing whether or not you’ll need to make adjustments to help you meet expectations.
Take a Good Hard Look at Your Profits
A lot of small business owners make the mistake of believing that revenue is the be all, end all indicator of success. Revenue doesn’t count for much if that revenue vastly overshadows profits. You could be taking in $50,000 a month and feeling like a rock star, but what do your expenses look like? If you’re putting $40,000 of that money back into the bills, your business isn’t as profitable as it may seem on the surface.
What matters more than anything else is whether or not a business generates a profit, and just how substantial that profit is. Your profit margin is crucially important, and if it’s too low for too long, you can quickly find that your business isn’t worth much at all. If you want to boost the worth of your business, explore some strategies to increase your profits.
Have Your Business Appraised
Your business may not be as valuable to someone else as it is to you. You understand how much time and money you’ve put into your success, but other people won’t look at it from that same perspective. The best way to get an objective idea of the worth of your business is to have a professional valuation done. There are a number of services that will confidentially take your data and process it to generate an unbiased figure.
If your business is a website, things work a little differently. Almost all profitable websites could be reasonably considered businesses, whether or not they actually sell original products. If your business falls into this category, you can use tools like Digital Exits to get a professional valuation.
Consider Other Valuation Methods
Apart from analyzing your profits, consider other valuation methods that help to assess the value of your business accurately.
The asset-based approach sums up the value of all of your assets. That includes tangible assets like office furniture and intangible ones – for example, trademarks and copyrights. This approach is based on the assets’ resale value and not the price of replacing these assets.
Another smart idea is checking what businesses similar to yours have sold for. But that approach works only if the sales occurred relatively recently. Since small businesses are unique, it might be hard to find one that is similar in terms of sales volume, location, and other relevant factors.
Industry formulas are another interesting option. Are there any rules of thumb that are relevant to your niche? It might be twice the book value of your company or three times your profits averaged over a specific period of time. These guides will give you a general idea of the current market and help in your valuation effort.
Of course there are other factors that will play into the worth of a business and what most business owners would consider an acceptable deal. No two businesses or sets of circumstances are exactly alike. Always trust your gut and listen to your intuition before you complete a deal.