Why Correctly Valuing Your Business Is Essential


01 October 2022


Your Business

Knowing your business’s accurate value can be helpful if you plan on selling your brand someday. However, the fear sellers have in getting the best possible price is understandable.

Selling your business is one of the most significant events in your professional life. While this brings some caution, it should also be exciting as you move on to your next adventure. Before you start the process, it’s a good idea to use a valuation calculator to get an idea of how much your business is worth.

Gathering as much information as possible about your business is essential. Preparation is key. With that in mind, here are 6 key tips to help you value your business correctly.

Tips To Help You Value Your Business

 Value Your Business

Here are some ideas that can help you understand the valuation of your company:

1. Understand Price-To-Earning Ratio (P/E)

It is typical for businesses to use the price-to-earnings ratio to understand their value. This tip works best for companies that have an established profit track. The P/E will be higher if the business has high-profit growth.

Let us take an example — if your company makes $500,000 profit after taxes and you utilize the P/E ratio of 4, it means your business will be valued at $2,000,000. The P/E ratio will depend on the growth ratio of your company. For instance, start-ups will have a higher ratio because they are high-growth businesses. On the other hand, high-street companies, like real-estate companies, will have a lower P/E ratio.

Since P/E ratios can differ extensively, no standard ratio can be used to value all types of businesses. In most cases, the valuation between 4 and 10 is used as the standard.

2. Cost Of Entry

This tip is quite simple — this is the total cost of setting up a business similar to the one being valued. In this case, you will have to consider every factor that helped the business get to where it is today. This involves all the costs, tangible assets, building a customer base, recruitment, etc.

Next, you need to think about all the money you can save while setting up the business. For instance, the costs you save by using cheaper material alternatives or setting up the business elsewhere.

To get the entry cost, you need to subtract the latter (saved money) from the former (the cost of setting up the business). This is your valuation.

3. Valuing The Business Assets

In the case of established and stable businesses, these companies often have a lot of tangible assets that can be valued. Some great examples, in this case, include those in the manufacturing and property businesses.

You will have to start working out the company’s NBV (Net Book Value) to start its asset valuation. In most cases, these assets will be recorded in the accounts of the business. Next, you simply need to make a few other adjustments like depreciation, etc., to determine the assets’ actual value.

Business Assets

4. Discounted Cash Flow

This is a complex way of determining the value of a company – it is all about making reliable assumptions about the future of a business. In most cases, this particular method is used by companies with more predictable and stable cash flows. For example, utility companies.

As you can guess, this tip will help you understand the value of the business by estimating the worth of the future cash flow today. Adding the dividends forecast will help you figure out a valuation for the next decade or so.

5. The Rule Of The Thumb

There are a handful of companies that deal with the buying and selling of businesses. Therefore, it only makes sense that these businesses utilize certain standard methods to determine the value of their companies. They are based on other things, apart from profit.

When selling a business, it’s important to identify the target market and understand their needs, such as business owners who will buy a business, in order to position the sale effectively and maximize the value for both the buyer and seller

Let us take the example of retail companies. The value for these businesses is derived from other factors like the number of outlets, total number of customers, business turnovers, etc.

6. Non-Measurable Valuation

As we have said in the beginning, the worth of a business is exactly what the other person is willing to pay. In this part, even intangible assets can be considered.

If your company has a better relationship with your suppliers and/or customers, it will be more valuable. If the buyer does not have a stable team to grow your company, you can also add a strong management team for additional value.

 Non-Measurable Valuation


With the help of these tips mentioned in this article, you should be able to approximately evaluate your company. To further help with your valuations, there are useful business valuation tools online.

For an online business valuation tool, you will usually need to provide some basic data about your company, which will then be measured against the standardized benchmark to provide you with an accurate company valuation.


Amrik is the Brand Manager at BusinessesForSale.com. He is experienced at helping connect business buyers with sellers, through marketing and content writing.

View all posts

Leave a Reply

Your email address will not be published. Required fields are marked *



Green Business Opportunities for Eco-Entrepreneurs

Whether or not people are willing to admit it, climate change is here. And it's affecting how people live in all parts of the world, from rising sea levels that are wiping away micro-islands to protracted droughts that are impacting crop yield. As an entrepreneur, you have the ability to make an even broader impact towards a greener and more sustainable approach to doing things. Here are six green business opportunities for eco-minded entrepreneurs: Green Printing: Ink refill businesses don't exactly sound exciting or profitable, but it's actually a highly lucrative endeavor, not to mention an eco-friendly one, too. Refilling ink cartridges reduces non-degradable plastic waste that end up in landfills. In fact, close to 400 million empty ink and toner cartridges are discarded each year. That creates tonnes of plastic and chemical waste that seep into and pollute soil and water systems. Green Finance: Businesses like Red Maple Financial are helping create a greener future by diverting their funds and resources into local, community-driven projects. You can either invest in or create a similar business model that supports sustainable, eco-friendly agriculture. Aside from financing, green finance is also typically involved in projects that create educational opportunities, support artistic endeavors, and bolster local ecological interest. Green Retail: Eco-friendly retail stores, like EcoPlum, are becoming increasingly common as retail consumers become more aware and proactive about their carbon footprint. With each purchase, customers can earn points that they can later exchange for rewards or choose to donate to worthy environmental projects. Every product these green retailers sell also bear a green certification, which means you are also supporting sustainable manufacturing practices. Green Construction: Construction is and will always be a booming industry. As the human population increases, construction projects will relatively increase as the need for housing and public facilities emerge. Sustainable construction materials including recycled railroad ties and pilings are paving the way for greener infrastructure. Companies, like Axion, are switching from traditional, non-sustainable materials, like gravel and steel, to recycled plastic. Green Catering: The food industry, for decades, has been generating millions of tons of waste, from unsold crops to spoiled meats. Organic catering is a great way to combine your passion for food and the environment. By catering to local parties and business events, you can control and lower food spoilage by using only organic and locally-grown fruits, vegetables, and meats. You can also ensure that poultry is raised and slaughtered humanely by working only with farms that adhere to strict and rigorous practices and standards. Green Blogging: If you want to start an eco-friendly business but is short on funding, you can always share your values and inspire change by starting your own blog. As a green blogger, you will be writing about environmental topics, such as reviews of green cleaning products or organic restaurants in your local area. You can start making money through marketing and/or selling these eco-friendly brands to your readers. Final Thoughts: Going green is crucial towards saving the planet for future generations. As an entrepreneur, you have more influence and power to affect change in the direction that you want. Keep in mind that these are only six of the many green businesses that you can pursue. In general, any business today can be recreated into an eco-friendly, sustainable model of itself.Read Also:Why Do Entrepreneurs Put Up Their Drop Shipping Websites For Sale? 7 Startup Ideas For Young Entrepreneurs


Relocating Your Business To Downtown Toronto? Read This First

Downtown Toronto is a happening place. It’s high density, with easy access to other businesses, a thriving after-work culture with its restaurants and pubs, and, yes, even a little bit of green space here and there. That’s not to say there isn’t merit in planting your business outside of the downtown core – there are good reasons to stick to the 905 areas (though, for the sake of brevity, this article won’t explore those reasons) – but downtown has its perks, which is why in the past few years businesses have flocked back to its busy streets.According to most analysts, this has everything to do with attracting talent – in specific, young talent. As young professionals tend to live inordinately within the city and are becoming increasingly “commute-averse”, they opt for jobs in the downtown area. As they do so, the surrounding areas face an unfortunate kind of brain drain. This is coupled with Toronto’s new “live, play, work” developments, aimed at centralizing employee life within a small space (think Liberty Village, for instance), which further discourages young professionals to commute.This is all to say that, if you are choosing to move your business downtown, it is completely understandable. You might find a renewed sense of energy, access to better employees, closer proximity to clients, and a greater sense of legitimacy. But moving your business to downtown Toronto comes with its share of considerations: namely, expense and security.The move to downtown Toronto should be accompanied by a renewed commitment to workplace security, both physical and cybersecurity. With a denser population and a greater amount of foot traffic around your office, the chances of intruders, both during and after work hours, increase exponentially.To effectively deal with unwanted visitors during office hours, the reliable way to go is with ID badges, which are the industry standard for downtown businesses. It can seem like a daunting task implementing ID cards, but it’s actually pretty simple and (crucially, when you’re spending money on moving) cost-effective; visit the Avon Security Products Blog for tips on how to choose and implement the correct system.Another added benefit of ID cards is that they can be used to restrict access within the office. If you keep the sensitive or expensive material in a certain room and would like to restrict access to that room to only high-level employees, you can do so easily with an ID card. Moving downtown will likely mean some employee turnover, so this is a smart measure to take.As for expense, the best advice you’ll get is that you can’t forget the hidden costs of moving, such as utilities, cleaning, and insurance. Luckily, certain expenses involved with moving are tax-deductible, like storage costs, vehicle costs, and meals. Another concession you might have to make when moving downtown, in order to maintain overhead costs, is size reduction; a smaller office downtown might cost somewhere near what you were paying before.As you can see, there are benefits as well as concerns that go along with moving your business downtown. It appears to be a good idea, especially given the amount of young talent concentrated in the city, but it will require a rethinking of expenses as well as a rededication to security.Read Also :6 Things You Should Know Before Starting A Business Top 8 Benefits Of Professional Business Cards 4 Reasons Your Home Business Needs A Virtual Receptionist

Virtual Receptionists

Balancing the Books with Outsourcing – Virtual Receptionists

In this modern age of ever-increasing use of electronic forms of communication, there is no wonder that many kinds of businesses are constantly looking for ways to keep up with their competition. Indeed, accountancy firms looking to improve the way they handle incoming calls to their offices will probably consider contacting a provider of virtual reception services.Of course, busy owners of an accounting company who need to ensure all their calls are answered in a professional and courteous manner at all times would be wise to search for websites providing insight into the benefits of virtual phone answering solutions. By looking at websites that tell you the benefits of hiring a virtual assistant, overworked accountants who wish to find a solution to their current issue regarding office reception service should be able to find out more about why using a virtual office assistant service is a good idea.Needless to say, accounting firms with aspirations of becoming a leader in their industry will need to make sure they are able to retain their clients by providing a phone call answering service with very high standards. Providers of professional virtual phone answering an email response services that are thinking of branching out into the accountancy sector will need to make sure they hire the right people for this kind of work. Skill Set : As there are suppliers of virtual office receptionists who have people from a variety of backgrounds in their employment, it should not be too difficult for an accounting firm to find a virtual office assistant with the right skill set for their organization. Indeed, by taking our time when looking for a telephone answering service for our accounting business, we should be able to avoid ending up with a virtual assistant that is not suitable for the tasks they are given. Of course, highly-qualified virtual office assistants with a background in bookkeeping or other accounting competencies will be able to deal with related enquires by existing or potential clients so much more competently than those with little or no experience in this field.Some of the tasks undertaken by a receptionist working in the accounting industry include:Managing all incoming invoices Inputting Accounts Payable data into the accounts system Making sure key bills are paid on time Answering telephone calls from clients and colleagues Managing email accounts for client communicationsMultiple Offices :Accountancy firms that have done exceptionally well since their inception may have got to the stage where they have offices in a number of places including different parts of the country where they are based. Australian accounting firms in Sydney who happen to have a number of offices in the CBD would be wise to get in touch with a provider of virtual assistant services in order to be able to provide a focal point for all their incoming calls.Indeed, by reducing the number of different telephone numbers we have for our business, we should be able to increase the control we have over our company practices. Bosses of an accounting company that have managed to secure the services of a professional virtual office assistant provider are bound to discover the benefits of such a smart business move.Moreover, busy accountants who do need to visit their various office locations throughout the city will appreciate having a virtual receptionist to handle all incoming calls whilst they navigate through congested traffic during peak hour times. Of course, accounting firms who are able to function much better by employing the services of a virtual secretary will be able to focus more on the other important aspects of their business.Read Also : 4 Reasons Your Home Business Needs A Virtual Receptionist An Introduction To Voice Over IP (VoIP)