5 Things That Affect Your Business Valuation

Everyone wants to business either you are an investor, entrepreneur, or any businessman. Competition for doing business is way higher than it used to. We usually see investors invest in other businesses or even buy whole businesses to expand their business circle. If you are looking forward to attracting any investors or want to sell your business, you would have to get your business evaluated. You might be facing hardships financially which is why you would want to attract investors or sell your business and that’s fair enough. So, if you want to be financially strong by selling your business at high? You need to get inside the things that affect your business valuation. 

Business valuation is like a process of predicting or analyzing business value in the market to measure it’s worth for investors and business buyers. There are many companies working to offer professional business valuation services for startups and businesses. So, long story short, we’ll go through some of the key factors that affect your business valuation to let you know what measures your business worth. The main aim to discuss those factors is to give the required knowledge to those who want to sell their business or want someone to invest in their business. 

5 Factors For Business Valuation

Here are the following factors that most of the business valuation companies will consider measuring the worth of your business. 

  • Financial History 
  • Growth Potential
  • Customer Base
  • Big Clients Ratio 
  • Dependency on Owner

1- Financial History 

The first thing that comes in the process of business valuation is your company’s data from the past. That record may include everything one may need to evaluate your business. Data like balance sheets, loans, tax returns, profit-loss statements, and much more. Make sure to provide accurate information and record to get the best worth against your business.  

2- Growth Potential

Future growth potential is something that every investor or business buyer always considers. They would definitely want to know the growth chances of the business they are going to invest in. A business valuation process also determines the strategies currently applied in the business and what are the outcomes. Also, they will project your revenues and profit growth based on current business performance. 

3- Customer Base

Business is all about customers, the more size of customer base means more income and profit. Evaluating business also depends a lot on your business customer base size because it is directly linked to the revenue of a business. Like if one business is only working with one customer so in case of losing that customer, a company will lose all of its income. So, the customer base size of a business matter a lot for an accurate business valuation. 

4- Big Clients Ratio

Top clients of any business are like the assets of the company because the whole business depends on those clients. In most cases, dependency on top clients is not good for your business valuation. If your company’s revenue is depending on 2-5 top clients, your company is like on risk of losing most of its income if those top clients stop working with you. So, less dependency on the top clients would be better for your business valuation. 

5- Dependency On Owner

Probably the last important factor but not least. During business valuation, the owner’s involvement in the business also measured. They do analyze that how much a company’s working is dependent on the owner because the buyer company would have to hire an owner as well if this big business is way dependent on that one individual. For small businesses, it is better to be less dependent on the owner to get a higher business valuation. 

Besides these 5 factors, there could be many minor major things that usually business valuation professionals do look for in a business. You could have your personal reasons for selling your business but selling at higher worth would be only possible if you keep these factors in your mind. You can work with any professional business valuation company but the strategies and factors for measuring the worth of your business would be almost the same. 

FINAL THOUGHTS

After going through some of the important factors of business valuation, we can say that everything from minor to major matters to measure business worth. We came to know that the financial history of any business that is accurate plays a very important role in a process of business valuation. We’ve realized that dependencies within a business are also measured as well for an accurate business valuation. There are many things that business valuators and investors would evaluate to measure the exact worth of your business. Hopefully, you have got to know all the factors that play their part for a business valuation.

Ellen Hollington

Ellen Hollington is a freelance writer who offers to ghostwrite, copywriting, and blogging services. She works closely with B2C and B2B businesses providing digital marketing content that gains social media attention and increases their search engine visibility.