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so what is your business worth?

You work hard to make sure your business succeeds. You are building an asset for the future, whether you plan to sell one day or to pass it onto to your children. Often the business is the principal asset that owners are relying on for retirement.

When it comes time to calculate the value of the business they've worked so hard to build, many owners are surprised how little it is worth. The closer to sale time the business is valued the fewer opportunities there to improve the value and put in place strategies to minimise the tax.

Regular valuation can also assist you to identify those areas of the business where some improvements are required to maximise that sales price. It is also a base for monitoring your personal wealth creation.

There are many factors that are taken into account when valuing a business and all these need to be considered. Some of these factors are listed below:-

    Traditionally business valuation methods are based on three years of figures. So maximising profits in the last twelve months prior to sale is often too late.
    Another consideration is lease terms on premises. If the terms give a landlord direct influence on the business' future revenue this can lessen the business' value.
    The breadth of the customer base is another area that is considered. If the customer base has an ageing demographic with declining disposable incomes then the value is lowered. If the revenue is largely generated from a small number of customers then the value can also be lowered. Another factor to consider is whether the customer base is "sticky" (i.e. how dependent are your customers on your services).
    Business built around the skills and personality of the owner  also achieve lower values. It is important to be able to demonstrate that the business can run without much input from the owner. Staff need to be trained in their roles and systems and procedures should be clearly documented.

Even if you are not planning to sell your business soon, the reality is one day you will be. If you build your business with this mind, then you should be looking to adopt strategies to improve your business value from year to year throughout it's life cycle.


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