Several business owners do not give much thought to the value of their company till the time they begin to consider their exit strategy. Because plenty of owners of businesses sink the majority of their wealth in growing the company over the period of their respective careers, selling the business is typically the main strategy they use when it comes to creating liquidity and starting on the next chapter.

In some cases, based on the distinctions between rules of thumb or other methods, entrepreneurs might find themselves asking “how to increase the value of my business before actually selling it”. Regardless of how or whom you would like to sell your business, there are options for increasing your business’s value based on value rather than just waiting to negotiate a higher sale price. Here is how to prepare your business for a valuation.

1.  Invest in Marketing and Brand

Marketing and branding must support the efforts of your sales team. Confirming that your brand is well-defined and consistent helps differentiate your business from the competitors and can make a huge difference between premium pricing and commodity for your services and products. A robust brand will allow you to attract more customers while also helping to retain them.

2.  Handle Customer Concentration Risk

It is best recommended that you take a much closer look at your current customer base and assess whether your business relies too heavily on a single customer or client when it comes to its overall revenue. Even though you may have joyfully built your business on a very robust relationship, in case your business changes hands, the relationship will unlikely hold the same value. A buyer will indeed be aware of the risk. Although it is not a single customer, your client base might be concentrated in one single industry or a specific geographical area. Priotiosing building out your business through selling into some new areas or markets will allow you to decrease customer concentration risk. When it comes to business valuation, taking the help of business valuation experts and consultants in Australia is also recommended.

3.  Reduce Supplier Risks

In the last few years, many companies have learned how vulnerable their supply chains actually are to whims of weather and climate, geopolitics, labour constraints, etc. Diversifying vendor relationships can prove to be ideal, distributing the risks more widely and enhancing long-term performance. It will also allow you to create opportunities, assisting in outselling the competitors in the meantime. Just remember to focus on asset valuation as well.

4.  Re-Assess Pricing

Many businesses often go long periods without giving a thought to how much they charge for their products or services, which is a common mistake. If a simple price bump can help you increase your sales because the customers are ready to accept it, there is simply no reason not to do it. This does not mean that a price hike is always a good choice or that you should assume that your clients won’t walk away. However, if you are monitoring revenue and sales performance diligently, you will have an easier time knowing if a price increase is a good idea or not.

Wrapping Up

Increasing the value of your business is worth the effort before selling it. However, most entrepreneurs are unaware of how to do it. Follow the tips from this article to prepare your business for valuation.

Assessing the value of a business is crucial regardless of whether you are looking to buy it or sell it. During this procedure, it is paramount to avoid making some mistakes. This is because they can reduce the likelihood of the transaction occurring due to things like unrealistic expectations or, in a lot of cases, selling the business for less than it is worth. It is worth noting that finding out the value of a particular business is not a straightforward task. There are plenty of different methods used for business valuation.

Valuation can also be made with diverse degrees of detail and attention. It is a fact that even the different valuators won’t be able to come up with the same figure. Navigating the complex business valuation process can prove to be challenging. This is where knowing and avoiding some common mistakes can be helpful. Here are the common business valuation mistakes and how to avoid them.

1.  Using Imperfect Valuation Models

The applicability of a business valuation depends highly on the model your preferred accountant utilises. Here are the three primary valuation approaches:

• The market approach
• The income approach
• The asset approach

 

There are varying methods involved in each approach that may be relevant depending on the business. In most cases, the professional valuation expert you hire will pick the method that shows your business’s economic realities. Regardless of which one the professional chooses, you should ensure that it addresses some important things. This includes off-balance sheet liabilities, non-operating assets, non-financial effects of a possible sale, and the level and treatment of the involved risks.

2.  Imperfect Judgement

 

Judgement is very important when it comes to reaching valuation conclusions. Imperfect judgment can certainly have some consequences. They become even more important if you would like to project the assumptions into the future. It is important that your preferred valuation expert utilises market-based forecasts to reduce the chances the mistakes that arise from flawed projections.

Any business growth assumed by the professional must be backed by evidence. It is best that you ask them where their assumptions came from. This is also true for your own assumptions. For instance, your team might have strong feelings about where the business is headed, but if those assumptions differ a lot from the professional’s assumptions, finding a middle ground will become crucial.

3.  Not Providing the Required Information

 

When you are looking to hire the best business valuation experts and consultants in Australia, it is a must to share the required information about the business. Working collaboratively is important when it comes to business valuation. It is true that few business owners are uncomfortable with providing confidential information.

However, revealing all the required information is paramount to getting a realistic valuation. The process is not just limited to providing some numbers and getting a valuation figure. In many cases, the professionals will be required to make on-site visits and ask some important questions to completely understand the company.

Wrapping Up

Business valuation is never straightforward, and the procedure involves many steps. Due to this, people end up making mistakes that have heavy consequences. Avoid the ones mentioned in this article to get a realistic valuation.

Asset valuation holds immense importance when it comes to finance and investment decision-making. Regardless of whether you are a business owner, financial professional, or an investor, it is very critical to learn methodologies and principles of asset valuation. Put simply, asset valuation is a type of valuation that focuses primarily on the value of a business’s assets or the accurate market value of the total assets after the liabilities are deducted. Basically, the assets are evaluated helping you get the fair market value.

For instance, some landowners may want to work in partnership with appraisers to figure out the market worth of the property. The prices increase over time, and the owner may find out that the property is worth more than it was a few years ago. For realistic valuation, you should learn the different methods. Here are the different methods of asset valuation.

1.  Asset Accumulation Valuation

The method known as “asset accumulation” carries a similarity to the well-known balance sheet. Typically, all the assets as well as liabilities of a company are brought together, and a value is assigned to each one of them. It might sound simple in theory, but the trouble is in details. This is because every asset and liability needs to be identified in a very careful manner. Furthermore, this particular method needs an effective way to allocate value to the assets. It is worth noting that some items utilised during the valuation procedure do not show up on the balance sheet. They contain intangible assets, including patents, trademarks, etc.

2.  Excess Earnings Valuation

There is also another method known as “excess earnings valuation” which is basically a mixture of income as well as assets valuation methods. Besides just evaluating a business’s tangible assets and liabilities, using this method can also help work out a business’s goodwill. When it comes to deciding goodwill, the earnings of a specific company are used as input before drawing a connection to the method of income.

This valuation method is used widely when valuing strong businesses with significant goodwill. Some examples include engineering businesses and architectural firms. The excess earning valuation method can also be helpful when valuing manufacturing enterprises and established tech companies. Ideally, you should hire the best business valuation experts and consultants in Australia for the valuation.

3.  Approaches Used in Asset Valuation

There are a few different approaches that are used in asset valuation, which depend largely on the asset’s nature and valuation’s purpose.

Comparable Sales Approach

This method is all about comparing the assets being valued to similar ones that were sold recently. It relies heavily on the market data while considering some vital factors like location, size, condition, etc.

Discounted Cash Flow (DCF) Analysis

DCF analysis involves estimating an asset’s current value by discounting the estimated future cash flows to their current value by utilising an adequate discount rate.

Option Pricing Models

For valuing assets that have option-like characteristics, including real estate options or stock options, option pricing models are the best approach. Typically, they consider factors like time to expiration and volatility.

Wrapping Up

There is no denying that asset valuation is a complicated procedure that demands an in-depth understanding of the involved methodologies and principles. By knowing the methods, such as the ones mentioned in this article, it will be easier to do asset valuation.

Due to the highly competitive business market, business valuation can prove to be a challenge for most businesses, especially small ones. Many startups consider business valuation daunting since they do not have a set business model and are unaware of the correct strategies to perform this task. It all starts with knowing what business valuation is. Put simply, it is the procedure of evaluating the value of a specific business. There are plenty of methods that people can use to do so.

 

This includes assessing the income, business model, asset value, considering the external environment, etc. Business valuation is very important for small businesses for a variety of reasons. However, it is likely that, as a small business owner, you will face a few challenges during the process. Overcoming them will be easier if you are aware of them. Here are some common valuation challenges for small business owners.

1.  Picking the Right Valuation Method

You might be aware that there are a few options when it comes to valuation. Not all of them are best for every situation. The income-based ones estimate the current value of the company’s future cash flows. The market-based ones compare the company to the similar ones that were sold. Asset-based ones estimate a particular business’s net worth by subtracting the liabilities from the assets. All these methods have a few pros and cons.

Income-based valuation methods are not the right choice for small businesses with negative or no cash flows. Market-based valuation methods fail to show a company’s unique characteristics, while asset-based valuation methods tend to overlook things like intangible assets and goodwill. Hence, it is essential to pick the valuation method that best shows your business’s potential.

2.  Difficulty Valuing Intangible Assets and Goodwill

In simple terms, intangible assets are non-physical assets that have value for the company. This includes customer lists, licenses, contracts, trademarks, patents, reputation, etc. On the flip side, goodwill is a business’s excess value over its tangible assets and recognisable intangible assets.

 

In most cases, intangible assets and goodwill are tough to measure and value because they depend on numerous factors, including industry trends, market conditions, competitive advantage, and customer loyalty. It is worth noting that they can have a substantial impact on the business valuation. Hence, you should look to find out and quantify the goodwill as well as intangible assets of your business.

3.  Dealing with the Valuation Uncertainty

It is a fact that valuation involves estimation, judgment, and projection. It is true that valuation is subject to uncertainty thanks to things like availability as well as the quality of information utilised, the assumptions made for the valuation, and changes in the external environment that affect the valuation. Such factors have the ability to make a business’s valuation vary a lot. You can use multiple valuation methods and update and revise the valuation occasionally. You should communicate as well as negotiate the business valuation transparently. It is better to hire the best business valuation experts and consultants in Australia for the valuation.

Wrapping Up

Incorrect business valuation will not only waste your precious time but also rob you of the money you deserve. This is where it is important to understand the common challenges such as the ones mentioned in this article and overcome them.