HOW TO KNOW YOUR BUSINESS MARKET VALUE
HOW TO KNOW YOUR BUSINESS MARKET VALUE
How To Know Your Business Market Value
Knowing the value of your business is essential because it gives the owner access to knowledge of how stable the business is and equally helps in suggesting necessary steps to grow an enterprise. Many business owners especially small-scale enterprises fail to access their venture and know its worth which is not best. You should at every point in time know where your business is driving at, whether you are in the right direction towards reaching your set goals or you are moving in the wrong direction. In addition, having adequate knowledge of your business value helps you have a suitable price tag for your business in case you want to sell. Understanding ways to determine the value of your business is extremely important.
Cash Flow Statement
This statement is mostly used when an owner wants to sell his enterprise. A lot of buyers want to have knowledge of how much cash your venture can generate. With this, the seller goes for the cash flow statement which clearly shows the inflows and outflows of cash for the enterprise over a specific period of time. After finding out about cash flow in the business, the cash flow number is now discounted for its value in future. Most times, cash flow statements are often used for valuing companies with shareholders.
For any business, assets are everything owned by the company which has a value and can easily be shown on the balance sheet. The assets a business can own include land, building, equipment and vehicles, supplies, cash, receivable accounts. There are equally intangible assets which also have value such as intellectual property. For business owners willing to sell their enterprise based on asset valuation, you can only have part of the enterprise’s valuation picture. There is the mystery factor for any business valuation which is known as goodwill. The goodwill is simply the intangible value of your business’s customer base. From an accounting point of view, it is the premium actually paid for the venture over the book value on the assets list clearly on the balance sheet.
Companies with huge assets have higher value to companies with less because there is guarantee the company will stand stable even in tough times. The business can fall back on assets after witnessing financial setbacks.
Another major way of figuring out your business market value is finding out how many shares of the venture are outstanding. This entails how many shares of the enterprise are held by shareholders. These includes shares held by insiders like employees and company board members, and also external investors like banks and individuals. Knowing the total sum of outstanding shares helps in reaching a business market value for your business enterprise.
There is no doubting the fact that the economic condition of any nation plays a huge role in business dealings and transactions. The condition of the economy affects businesses in numerous ways, and local economies have greater effect on one’s venture. If you are out to determine your business market value, you surely cannot neglect the role of the economy. For owners that wants to sell their businesses, the state of the economy is a great factor in calculating or finally reaching a suitable value for your business.
For instance, if your business is valued at 700 million dollars prior recession in your country, there are bound to be changes due to the state of the economy. Recession might see the value drop from the initial 700 million to about 650 or less.
This is largely because recession comes with a lot of problems such as staff retrenchment, pay cut for staff, and factors like hype in the cost of production. However, it is important to note the fact that not all ventures drop in value due to recession, some maintain stability while some others still flourish. It is all about having full knowledge of the economic terrain in your country and putting it to good use. Most businessmen/women have poor knowledge of their country’s economic movement and yet they want to run a venture with high market value, you must understand the direction of the economy.
In a world becoming increasingly tech-oriented, it is difficult to underestimate the role technology has to play in the daily running of your enterprise. For individuals that are determined to know their businesses’ value because they want to sell, placing a value on your company’s technology is very difficult in most cases. For ventures that are exposed, well equipped, and constant with the use of technology especially ones that operate with the use of the internet, does transactions online like selling, with computer programs and apps, it can go a long way in improving your business’s value in the sight of the public especially in a country like Nigeria where a lot of companies pay little attention to the technological factor.
Location and Market Factors
There are certain businesses that the location matters a lot and affects the value either positively or negatively. For instance, businesses like real estate dwell very much on the choice of location. You cannot value your business equally with businesses located in an advantaged position more than yours. For instance, if your business is centred around sports kits and your choice of location is an area far from sporting complexes and stadiums, you do not expect to have a better market value compared to people that deal in areas where their products are much more needed. Also, if you want to sell the venture, the buyer rates the business with great consideration to location. It is best advised for you to get a suitable location when establishing your business.
Patriarch Business Advisory (PBA) aka Patriarch Advisory (PA) is a management consulting firm committed to bridging the knowledge, finance and mentoring gap of small and medium sized enterprises in Nigeria. We provide excellent bespoke services that are extremely useful to any business. Among others, our services include business financing, marketing strategies, growth and expansion plan, and objective business diagnosis. Some our deliverables include Business Plan, PitchDesk, Grant and Loan Application, Proposals, Concept Note and so on. Please contact us today to discuss your specific concerns. The excellence we put to our work stands us out.
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