To determine the worth of a business, one must consider a few factors. For one, a business is only as valuable as its ability to provide an income in the future for a buyer. Other factors like what equipment does the business own; what is its inventory; profitability trends matter as well? Market comparables will also be important in understanding what your business may ultimately sell for.
Next, a good set of books not only helps determine where the value lies but makes a business more valuable, in general. A valuable business is one that can accurately inform a potential buyer how profitable it is and has been at any given time and how it will perform into the future.
Additionally, revenue is a good lead measure of a business’s worth but not the most black and white. If a business has gross revenues of $500,000 per year, however if it expenses are $495,000 to keep a business afloat, then $5,000 net profit it is not a highly valuable business. This is why any broker would seek to adjust your profit and loss statement in order to understand true earnings and other factors to determine valuation.
Once each of these elements is estimated, then intangible assets may either have an upward or downward pressure on the market value. For instance: location, economic conditions, competition, goodwill, lease terms, and customer loyalty and diversification can add or subtract from value.
In essence, a business’s worth is a combination of its earnings and its good standing in the community. Although there is no simple answer to valuing a business, a Transworld Business Advisor can help you understand your business’s potential market value.