Value Your Business and know its worth
The profitability of the company and its assets would determine the exact value of a company with N100 million in sales. A company is typically worth between one and five times its annual sales. Therefore, in this scenario, the enterprise’s value would range from N100 million to N500 million.
Factors that impact the value of your business
There are several factors that impact, positively or negativdly, on the value of any business. Some are within your conyrol and some ate outside your control. Generally speaking, your business is worth what someone is willing to pay for it.
It is important to have a skilled business attorney advise you on your unique circumstance.
These factors include:
1. Earnings history
2. Profit Margins and EBITDA size.
3. Growth prospects
4. Customer Concentration.
5. Assets any liabilities
6. Any intellectual property, systems and processes
7. The level of compliance with regulations and your level of documentation
9. Reputation / public perception or good will
10. Industry Concentration.
11. Strength & Depth of the Management Team.
12. Competitive Advantages
13. Macroeconomic conditions
14. Availability of buyers
Simple Ways You Can Self Assess the Value of Your Business
Move past mathematical calculations. Don’t solely rely on crunching numbers to determine the worth of the company. Think about your company’s worth in relation to its location. In addition, if there are business synergies, take into account its possible strategic worth to an acquirer.
You can assess the market value t of your company in a variety of ways.
Add up the asset value. Add up the value of all the company’s assets, including all of its inventory and equipment. Subtract any liabilities or debts. The balance sheet value of the company is at least a place to start when figuring out how much the company is worth. However, the company is likely worth much more than its net assets. What sort of revenue and earnings should you anticipate?
Base it on income.
How much revenue does the company make each year? Calculate that and estimate, with the help of a stockbroker or business broker, what a typical company in your sector may be worth at a particular level of sales. For instance, it might be normally two times sales.
Make use of earning multiples.
A multiple of the company’s earnings, or the price-to-earnings (P/E) ratio, is perhaps a more pertinent metric. Calculate the company’s expected earnings over the following five years. If the expected earnings are N100,000,000 per year and the normal P/E ratio is 15, the company would be valued N1.5 billion.
If you do not know the P/E, you can hake use of projections. Based on how long you anticipate the company will be in operation, you may also multiply annual earnings to determine the value of your business. This figure is referred to as an earnings multiplier. For instance, a company that has been profitable for the past three years at a rate of N50,000,000 and is well-positioned to do so for the
foreseeable future may sell for three to five times earnings, or N150,000,000 to N250,000,000.
The multiples technique makes the assumption that similar businesses charge comparable pricing. You would require another business in your sector that has recently sold if you used this approach. Divide the sales price by the company’s overall sales, EBITDA (earnings before interest, taxes, depreciation, and amortisation), or EBIT (earnings before interest, taxes, and amortisation). You will eventually reach a multiple, which is a number. To arrive at a valuation, multiply the multiple by the sales, EBIT, or EBITDA of your business.
Sellers Discretiinary Earnings (SDE)
SDE stands for the company’s annual net income before taxes, noncash expenses (depreciation), nonoperating expenses (loan interest), significant one-time expenses, and owner’s compensation.
SDE disregards costs that either don’t affect cash flow, are atypical, don’t have a significant impact on the core operations, or would otherwise artificially inflate a company’s apparent profitability.
SDE should be multiplied by a number between 2 and 3.5, based on a range of variables, such as market risk, the company’s projected future profitability, and an industry or geographic benchmark, to determine the value of a small firm.
Imagine that you are interested in purchasing business center in a significant urban region. The owner reports annual revenues of N5,000,000 and operating expenses of N3,000,000 for an operating income of N2,000,000 in its income statement.
The proprietor receives a salary of N1,000,000 annually, and the business spent N150,000 on 10 brand-new airconditioner last year, according to the general ledger, which records all business transactions.
SDE for the business will be N2,000,000 plus N1,000,000 plus N150,000, or N3,150,000. SDE is 2.75, which is a cautious estimate that falls within the reference range.
The company is valued at N3,150,000 * 2.75 = N8,662,500 using the SDE approach.
Putting a value on your company can be similar to setting the asking price for your house.nYour company’s value might be determined by looking at the selling prices of comparable firms that have recently closed in your neighbourhood. It might even be the most precise measurement tool you can discover to determine a company’s worth.
However, exact comparisons are hard to come by. Small business sales don’t happen as frequently as residential sales, and their details aren’t usually available. Talking to a business broker who could know some of that information is still worthwhile. Take into account elements like industry, labour force, and cli
ent base when looking for comparison.
Think about two opticians adjacent to each other in a building housing medical offices. Both dentists perform the same services, hire an equal number of personnel, set similar fees, and see an equal volume of patients.
One month before the other dentist retires, the first one sells her business for N15,000,000. The other dentist is probably going to sell for a comparable sum.
Analyse the discounted cash flow.
The discounted cash-flow analysis is a complicated method that projects the company’s annual cash flow into the future and then, using a “net present value” calculation, discounts the value of the future cash flow to today. Finding and using an online NPV calculator is simple.
Value your company for Sale
Key elements determining the value of your company
The value of your company can vary depending on a number of important criteria.
Profits and cash flow in the past, present, and anticipated.
how effectively you manage costs.
Future capital expenditures are required.
the overall state of the economy, including interest rate trends and, specifically, the level of demand in your market.
How comparable companies are valued.
how many potential buyers are curious about the company.
how many comparable companies in your industry are currently available.
Intellectual property like patents and goodwill.
Strength and profitability of customer ties.
Potential for expansion of your company.
scale economies that a new owner could take advantage of.
Assets and Liabilities Value of assets like real estate, machinery, debtors, and stock on hand. how full of orders you have. Debt load and other liabilities at present.
The track record of success for management. How much the company depends on your abilities, and how much you will likely be involved in the future. Key staff members’ devotion and experience.
You can take actions to increase the value of your company even if some of these factors are out of your control and may influence when you sell. Planning must be done far in advance. Think about including an exit plan in your initial business plan
. See planning to sell your firm for further details. Always keep in mind that any assessment you and your counsel arrive at will probably be subjective. Business owners frequently overestimate the value of their company. In the end, a buyer’s willingness to pay determines how much your firm is worth.
The 5 professional ways to value Your business
- Discounted cash flow analysis (DCF)
- Asset-based valuation
- Comparable company analysis
- Precedent transactions analysis
- Leveraged buyout analysis