Typically a many businesses are valued on the basis of multiplier of turnover. This however is a misconception that should be viewed carefully as such a practice does not provide a valuation of the business’ ‘true worth’ in the market. This may provide an average indication and should be considered as being just this – an ‘average’ indicator.

The purpose of the multiplier is to provide the market with an idea of what a typical business in a particular industry is worth – based on industry benchmark data. It relies on averages for that business type. Access to such benchmark information is available whereby you can determine for your particular business what the expected performance measures should be and the average profit margin. For each business type there will be a different multiplier factor. Of course this is fine firstly, if your business is one of those that has been benchmarked and secondly, if your business fits the average profile. The quality of the multiplier may vary between some valuers and it also will be dependant on the quality of the data used to derive it. If you would like to know if benchmark data is available for your business give us a call and we can arrange to benchmark your business against the industry standards.

Businesses being what they are and owners being who they are, not all businesses will fit the average profile or match the benchmark data. Whilst many would argue that a business should always be ready for sale, my experience shows that this is not so true. If you have been well organised from thew outset about how you have managed your business then you should be ahead of the averages which should therefore make your business of more value.

So how do we then determine the value of the business, and what other factors effect the value?

We have touched on this partly in our May 2007 newsletter. What you need are wel lpresented financial statements. It is important that when valuing your business that you have a substantiated sales history that is at least consistent, but preferably growing, over the past 3 years in order to make your business attractive. The notion of getting the figures to look good for this financial year will just not cut it. Any business valuer or purchaser who knows there ’stuff’ will see through this in an instant once they look at your financial statements. They will not be looking at this years accounts, they will want the last 5 – 7 years Profit & Loss and Balance Sheet statements and they will be looking at trends in the figures across those years.

It is imperative that you have well prepared financials before you decide to exit your business and if you start work on this several years ahead as part of your business exit plan then you find the end result far more rewarding.

A factor not taken into account in most business valuations is the qualitative assessment of the state of your business. This can be critical to your ability to get a reasonable price on business exit. This is where factors such as:

• the soundness of business procedures,
• how well systematised the business is,
• the degree to which the business might be dependant on particular individuals,
• the strength of sales distribution relationships and networks

to name but a few. All of these factors will have an impact on the value of your business so be sure that when you do obtain an valuation, be sure that who ever does provide you with an indicative value that they have taken these factors into account.

If you haven’t quite got the above aspects of your business in place just yet and are t6hniking of exiting your business in the next few years then you are ideally positioned to create added value to your business now.

Interested in obtaining an indicative valuation assessment for your business or even having a Business Exit Readiness Assessment performed? Superb Coaching can provide this for you so give us a call or visit our web site at www.superbcoaching.com.au and we can talk to you about how well situated your business is for when you want to exit or you may just be interested in having such information at hand.