How to value your business
There are many ways to value a business. Ultimately any business, like any product or service, is worth what someone will pay. But how to we assign value to a business? What makes your business worth more than the guy down the street doing the same thing? How do you know what your IP is worth? Here is a set of three basic rules we’ve come up with over the years that gives a good idea of where your value is.
Plant
This is the easiest one. What inventory do you have? Any vehicles or equipment? Real estate or physical sites (factories, sheds, land). All of these add value and are usually the easiest to assign a dollar value to
Process
How do you do your work? What makes it special? Do you have any patents or other intellectual property? What is it that you do that no one else does? Can it be duplicated? Is there a way you can drive value creation by making your service unique?
People
People are the hardest to value. They are also the most important part of your business, and the one that is usually the most under appreciated. If all your staff left tomorrow, could you still function? Can you do all their jobs yourself? How hard would it be to replace them, and what would it cost you? Even for simple manual labour with little to no training, there is still a potential vulnerability there. The value of good staff far exceeds the simple salary cost.
Summary
Valuation is hard. But understanding where your value comes from makes you a better manager and owner. Knowledge of where you are strongest will also show where you are weakest, and having that understanding will make your business stronger, better and more valuable.
If you need help with your business, contact us today.
Disclaimer
This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided in relation to your own circumstances.
