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How do you know what your business is worth? The amount that you think its worth is probably different to the value in the mind of a potential buyer – after all, you’ve invested a lot more blood, sweat and tears into this company than any new owner.

But it’s important to have a clear idea of what the company’s worth if you’re going to protect your capital, your assets and (ultimately) your own livelihood.

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4 basic criteria that affect value
At Tyrrell and Company, we’ve worked on valuations for many of our clients. It’s an important part of planning a growth strategy or the end sale of the business, so getting as accurate a valuation as possible is always the end aim.
And, in our experience, there are four basic criteria that have an impact on the end value of a business

These are:

  1. Individual circumstances
  2. Tangible assets
  3. Intangible assets
  4. Length of time

If you focus your valuation calculation on these specific four areas you’ll get a precise and truthful overview of the worth of the business – and a figure that can then inform your access to finance, growth planning or your eventual exit strategy.

So, let’s look at each of these criteria one at a time.

  1. Individual circumstances

As the laws of supply and demand dictate, your business is only worth something if there’s an interested party out there who wants to buy it. And the particular circumstances the business finds itself in have a huge impact on the potential worth that a buyer will see in your company.

  • How profitable is the business at present? Do your most recent statutory accounts show a good profit being made?
  • What debts do you have? Are you having issues with late payments that are racking up your liabilities and causing issues with cash flow?
  • How’s the market faring in your sector? Is your industry or sector going through a positive period at present? Or is there a slump that’s affecting the whole sector?
  • What state is the economy in? Is the country riding the crest of an economic boom? Or is it struggling to get over a recession?

All of these influences (and a whole lot more) will affect the particular circumstances of any valuation or sale. So you need to work them carefully into your valuation process – and err on the side of caution when attributing any potential financial impact on your business’ end value.

  1. Tangible assets

Over the course of setting up and running the business, you’ll have invested in the property, hardware and equipment needed to provide your products and/or services.

These include things like computer equipment, vehicles, tools and any production equipment you use – as well as any offices, workshops or factory space you may have bought, rather than rented/leased.

These are the assets on your balance sheet that you can reach out and physically touch (hence the tangible tag). And because you’ve bought and paid for these items, it’s usually fairly simple to add up the price tags and get a good idea of the overall worth of these assets.

Depreciation has to be worked into your valuation, of course. Your delivery van will lose worth with each year of use, for example. So that loss of value will need to be calculated, based on the original cost, length of use and the current state of the asset – e.g. if your driver has driven the van into the ground, it’s worth a lot less than if it’s in mint condition.

  1. Intangible assets

Many of the assets of the business aren’t things that appear on the balance sheet. Things like your brand, your trademarked products, your patents, your key people and your customer base all have inherent value to a buyer.

These assets belong to the company, but they’re a lot more difficult to value because of this inherently intangible nature.

For example, measuring something like ‘brand value’ isn’t something that can be done on the back of a restaurant napkin. It needs the input and advice of specialist consultants who understand both the market you trade in and the impact of a brand on a company’s money making potential.

As such, intangible assets can be a more complex part of the valuation process – and one where professional advice is essential.

  1. Length of time

Time waits for no-one, and it certainly has an impact on how much your company will be worth if you decide to sell it.

The point that you’re currently at on your business journey will go a long way to dictating your overall value.

  • Are you a fledgling start-up with a product that’s not yet made it to market, no employees and an (as yet) untested profit model?
  • Are you a growing business that’s been trading for two years, has a growing workforce and can already prove its profit credentials?
  • Are you a long-standing business with an established customer base, huge talent resources and a multitude of well-respected brands and products in your chosen market?
  • Are you a family business with 200 years of trading behind you, but no new products and a diminishing customer base that’s bringing in decreasing profits year on year?

The length of time you’ve been trading, the age of your business model and the overall status quo of the business all affect the perceived end value of the company.
Talk to us about protecting your assets and wealth
To get a truly accurate valuation of your business, you need professional advice. And that’s where Tyrrell and Company’s experience as business advisers will really help you get a proper reflection of the worth of your company.

We can help you carry out an effective valuation process, and give you the advice you need to define and protect your key assets and wealth.

Get in touch to have a chat with our valuation specialists.