"What is my business worth?" This is one of the most frequently asked questions we receive from business owners who are considering selling their businesses. The value of a business depends on numerous factors, making the valuation process a prerequisite in providing a meaningful response to this question.
Factors such as organizational structure, customer and supplier agreements and production capacity, when combined with potential and historical performance, have an significantly impact on the valuation of a business.
In the following sections, you will find information on the key areas that influence the value of a company. Additionally, we provide a brief overview of the process to follow if you are considering selling your business.
A company's historical financial figures serve as an indication of the demand for its products and services. If the company has consistently achieved positive financial results over a number of years, it demonstrates a healthy track record and signifies a company that has adapted and evolved in line with market demand.
But will the company's products still be in demand in 5 or 10 years' time? Is the company prepared for continued growth? These forward-looking questions are vital as historical performance alone cannot provide a complete picture, but should always be evaluated in relation with other important factors and potential. These factors include all areas relevant to the operation and development of the business.
The important factors include all aspects of the company's business foundation, which directly have impact on day-to-day operations, including customers, suppliers, products and organizational structure. Since the business foundation plays a crucial role to determining the value of the business, it is advisable to establish a solid and well-documented foundation right from the beginning.
It is essential to ensure a transparent breakdown of profit centers to understand which areas generate revenue and profits. It is also important to assess whether certain products are technologically, production-wise and/or commercially dependent on others. This understanding allows for a comprehensive evaluation of the business and its interdependencies.
The transparent basis can be effectively complemented by documenting workflows and processes in a Modus Operandum or Statement of Work.
The process of securing a well-documented database often involves the development of the business. In such case, we are frequently engaged in ensuring the creation of a solid database that justifies the value of the business.
The management structure and organization of a business also significantly impact its valuation. In this regard it is essential that the daily operations of the business are not dependent on the business owner. Therefore, it is advisable to establish a middle management level within the company and/or delegate responsibilities to key employees. This ensures a more robust and scalable operational structure, positively influencing the value of the business.
A solid foundation helps to establish an agile, self-sufficient organization capable of sustaining daily operations. Even in the absence of the business owner, whether its for a shorter or longer period. A sustainable organization is of utmost importance in assessing the valuation of the company.
Companies that heavily depend on the presence of the business owner often tend to have a lower value. To compensate for this, various models can be employed. For instance, you can agree that the departing business owner remains with the company for a predefined number of years. This facilitates the transfer of knowledge and allows for the proper structuring of the business during the transition period.
Similarly, the extent to which customer and supplier relationships are based on a solid legal and commercial contracts is crucial for the value of the company. When these relationships are well-established, it enhances the overall valuation of the company.
Basically, a strong business foundation leads to a higher valuation, whereas a weak foundation results in a lower value.
The basis for a company to remain relevant not only "tomorrow" but also in 10 years' time is crucial for its value.
Even if a product is currently in high demand, it does not necessarily guarantee its continued relevance in the future. Therefore, the company's ability to adapt and changing technologies and market demand is an essential aspect when we prepare a valuation.
The ability of the company to attract and retain the necessary resources also underpins the company's livelihood and hence value.
The transfer of business ownership must secure both the seller's legacy and the buyer's future. This principle is a key part of our business philosophy and is clearly reflected in the way we value businesses.
If, upon receiving the valuation of the company, you decide to proceed with the sales process, you will enter into a mandate agreement. This agreement grants us the mandate to search the market for suitable buyers and initiate dialogues on your behalf.
Information is always handled with utmost confidentiality in a controlled and efficient sales process.
Do you want to get your company valued or do you have any questions about the process, please feel free to contact us. Reach us by phone +45 70 20 04 16 or info@m-plus-a.com - It is free and non-binding.
