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Do you know what your business is worth and how to maximize its value?

It takes a chartered business valuator to determine the market value of a business. Because every business is different, determining a business's value is not an exact science, and there are no set formulas. A chartered business valuator can help you determine a realistic value for your business.

Small business owners actually have a pretty good idea of what their businesses are worth, but if you're transferring your business, you will need an independent market valuation. This process will help manage expectations and prevent conflicts, especially if you're transferring your business to family.

Determining the market value of a business is an art that requires the expertise of a chartered business valuator. Because every business is different, determining a business's value is not an exact science, and there are no set formulas. A chartered business valuator can help you determine a realistic value for your business.

A chartered business valuator will help you:

  • set the sale price for your business
  • determine its actual value
  • come up with a tax plan for the transfer and minimize your tax liability
  • determine whether or not you should really transfer your business to your children
  • reduce tensions among heirs
  • negotiate with potential backers

Your chartered business valuator will use the right valuation approach for your business. Each approach may entail a variety of methods. A business analysis (sector, past performance, growth, negative growth, positioning, etc.) will determine which valuation approach is right for your type of business.

Valuation approaches

Asset approach

This approach is generally used for businesses that are not viable. It can also be used when the market value of continuity is mainly attributable to the business's assets.

Income approach

The market value of the business is determined based on its ability to generate cash flow and a reasonable return on investment given the inherent risks.

Market-based approach

The market value is determined using valuation multiples based on comparable businesses or previous transactions.

Maximizing the value of your business

Once you've established the value of your business, you should work to maximize it in order to offset the stagnation that sets in all too often after business transfers. You'll have to immediately start considering ways to grow your business to maximize its value.

Ways of increasing value include:

  • optimizing processes to boost profit margins
  • improving income management
  • making strategic acquisitions
  • selling unprofitable assets
  • evaluating and repositioning existing alliances or partnerships
  • developing exclusive products, patents or technical skills
  • hiring key staff

In concrete terms, you'll have to choose which of these approaches will help you achieve your goals and establish timelines for each. This will help clarify your vision, prioritize your resources and maximize the value of your business. It will also help you determine the type of people you want to take over your business based on your values and vision.

A tool to maximize the value of your business

This tool will get you thinking and inform your decision making. It is critical to offsetting the growth stagnation that often sets in after business transfers.

The purpose of the tool is to help you:

  • determine how you can increase the value of your business
  • recognize what more you could to do increase its value
  • clarify your vision for the growth of your business
  • prioritize the actions you'll take to increase the value of your business
  • make a list of things you'll do to achieve your goals

Instructions:

  1. Mindful of your current situation, read the ways you can increase the value of your business and identify those that would work for you.
  2. Check the boxes that best represent your goals, current situation and ideal.
  3. Determine when you could complete these steps to increase your business's value.
  4. Determine what needs to be done to complete these steps and put someone in charge.

Ways of increasing business value

Approach Already do it I'm thinking about doing it I'm not thinking about doing it Date I want it done by
Strategic acquisition        
Sale of underperforming assets        
Supplier diversification        
Client diversification        
Significant competitive advantages        
Key hires        
Good market positioning        
Sound balance sheet and history of profits        
Exclusive products, patents, technical skills        
Other        

Follow-up tool

Approach Action Person in charge Deadline
Strategic acquisition      
Sale of underperforming assets      
Supplier diversification      
Client diversification      
Significant competitive advantages      
Key hires      
Good market positioning      
Sound balance sheet and history of profits      
Exclusive products, patents, technical skills      
Other      

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