In this age and day, it is always important to know just how much your small business or company is worth. Knowing the value of your company is especially important when the time comes and you decide you want to sell your company, perhaps when you want to venture into another industry or you want to make a huge investment. Additionally, business valuation can give you an insight into where you stand on the market, which is something you can use to improve the business general performance. As a matter of fact, the list of reasons to do a valuation for your business is endless; but how exactly do you determine your company’s value? Here are 5 basic tips on how to get the value of your company.
Evaluate your assets vs liabilities
One of the best ways to find the real worth of the company is to compare its assets against its liabilities and calculate the difference. This is called the asset-based method of valuation and it’s what most people use to determine the performance and financial standing of a business before making investments in it. You can simply do this by subtracting your liabilities (debts owed to creditors) from your assets (tangible and intangible things that add value to the business), which gives the book value (not to be confused about market value) of your company. To get the most out of this valuation method, you might need to work with an expert accountant.
Know your revenues
Another way you can know the value of your business is by analyzing your books of accounts and determining the amount of revenue that comes in every year. Are you operating at a profit? And if so, how much is the company’s annual income? This is another factor that most investors look at before they decide to invest in your business, buy stocks, discuss a merger or even buy the company.
And when it comes to this, much of your income will be determined by how your sales department is performing. If you’re not making enough sales, you may want to work with crm Salesforce Consultants to help streamline your sales department and significantly increase your revenues. Determining your annual income can help you in knowing your company’s net worth, which, in turn, can help you to identify loopholes that can be sealed to improve your revenue.
Watch the market
You can also estimate the value of your company by comparing it with similar companies on the market. Even though this may not give you an accurate figure, it gives you a rough idea of what buyers are willing to pay, especially in case you need to sell your business fast.
Utilize the discounted cash-flow analysis approach
This is a somewhat complex formula that projects the annual cash flow of your company into the future. The value of your future cash flow is then discounted to future cash using what is called the NPV (Net Present Value) calculation method. Luckily, NPV calculators are easily accessible and easy to use.
Go beyond the digits
Company valuation is not just about the numbers. Things such as its geographical location, and current technological trends could also have a huge impact on a business’ value. You just have to think beyond the financial aspects.
Especially for startups, it can be an overwhelming task to determine the value of your company. However, this doesn’t have to be so. You just need to know what to use, analyze, and look out for, and you’re good to go. With the above tips, company valuation can be much less daunting to any entrepreneur.