It can be difficult to establish the value of your business. We recommend you consult your accountant. Generally businesses are valued using one of the following methods;
Return on investment (ROI)
Possibly the most common method for valuing a business. The following formula is used to calculate the selling price;
Sale price = (net annual profit x 100) ÷ ROI percentage
TIP: To find the ROI percentage for your industry, talk to your accountant
This method adds all the businesses assets together to calculate the value. Assets may include stock, plant and equipment, property, vehicles, furniture, intellectual property, established client list and goodwill. The following formula is used to determine the asset value;
Sale price = assets of the business + goodwill
TIP: Valuing goodwill can be difficult, and in this day in age need to be proven for example with a data base
Generally used to value professional practices such as legal, veterinarian or insurance brokers and is rarely used to value retail businesses.
The following formula is used to determine the market value;
Sale price = turnover x industry multiple
TIP: Make sure you have a good understanding of the current market and are aware of industry standards. Research the market for businesses similar to yours, compare prices and set a price that is competitive.