Why you need to value your business
You’ve worked hard to build a reputable business over time, you have a solid database of regular customers, plus a selection of quality tools and equipment. It’s now time to put a dollar value on all aspects of the business.
If you’ve made the decision to sell your business now or in the future, you’ll need to value your business to determine sale price. Even if you are not planning to sell now, a business valuation will help you create a strong business roadmap and identify potential operational inefficiencies.
If you haven’t already engaged a business broker at this stage, it’s a good idea to make this investment to access expert knowledge and advice and help to negotiate the best sale price.
It’s also a great time to conduct a personal business valuation to evaluate your business health. This valuation will require a wide range of information and should include finances and assets, legal information, your business processes including current procedures and plans plus an overview of current clients and supplier agreements. If you have existing staff, you’ll also need to review staff job descriptions, skill levels and salary information.
There are several methods to value your business and a business broker can help determine which methods are best for your business. These can include:
- Business asset value
- Future business profit
- Current market values
- Return on investment
- Business goodwill
If you are calculating the value based on business assets, it’s important to ensure you include both tangible and intangible assets. This includes physical property such as tools, equipment and property plus intellectual property and business goodwill.
Master Electricians with an ME Safety subscription and ingrained safety processes should also include this in their intangible assets. It’s advisable to consult an accountant to ensure you correctly account for depreciation if including tangible assets in your calculation. A business broker or an accountant can also help calculate your business goodwill to ensure an equitable costing is achieved. Business goodwill can include:
- Customer lists
- Business reputation
- Brand recognition
- Customer loyalty
- Employee skills and licences
As market conditions, competition and business financial performances can fluctuate, it’s a good idea to perform a business valuation annually to let you know where you stand and plan your next moves.
Exclusive for Master Electricians, MEA has created a business evaluation checklist to help you review your current business structures and processes and determine potential areas to be reviewed and revised within your business. Access the checklist here. (Member log in required)
If you are thinking about selling your business and would like initial guidance, Master Electricians can contact the MEA Employer Relations Team on 1300 889 198 to discuss first steps. In our final article in the selling your business series, we’ll provide an overview about negotiation and contract preparation plus steps to take to finalise tax and legal requirements.
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