Wondering what your business is worth? Business valuations is an inexact science, ultimately a business is only worth what someone is prepared to pay. One common valuation method – cashflow or future earnings – uses a multiplier of either the current revenue or net earnings to value goodwill. Another method values the assets including the intellectual property (e.g., trademarks, copyrights, designs, patents) less any liabilities being transferred.
Your businesses’ value could be increased by:
– Increasing profitability (e.g., remove waste, reduce supplier costs, increase revenue).
– Recording all sales and expenses in the businesses’ accounts so they can be easily verified against GST and income tax returns.
– Diversifying income streams and growing a customer base that pays promptly and regularly returns to buy.
– Documenting ‘winning’ designs, production methods and sales processes so a new owner can step into your shoes from day one.
– Maintaining legislative compliance documents such as employment agreements and health and safety plans.
– Offering stability through the length of premises’ lease provided it is in an advantageous location that makes it easy to get supplies and for customers to buy.
– Maintaining current key customer and supplier databases and reducing dependency on one or two key customers or suppliers.
– Reducing your businesses’ dependency on your relationships and/or your skill set – for example by upskilling key employees and linking them to your customer base.
– Exiting any contracts that are, or are likely to become difficult, and investigate protecting your intellectual property under law.
This article was first published in the Mercury Bay Informer of 4 August 2021.
