How to Find Out What Your Business Is Really Worth (Before Someone Else Tells You)

Thinking about selling up your business? What’s it really worth? This is probably the question that’s most important when it comes to the sale of your business and one that you want to get the right answer to. After all, you’ve worked hard to build a successful business, so you should reap the rewards when it comes to the financial gains. 

Here’s everything you should know when it comes to finding out how much your business is really worth and how a true valuation reveals your business’s market strength.

Why Every Founder Should Know Their Valuation (Even if They’re Not Selling)

Founders of businesses should have a good understanding of the company’s valuation because it’s key for strategic decision-making. From negotiating funding to managing growth, it’s important to know, not just for the sale of the business, but for its future success. 

Knowing the valuation is a critical benchmark for assessment of business health, making key decisions on reinvestment or hiring new staff, and avoiding the disadvantage that comes when conducting any form of negotiation. 

The more knowledge you have about your business finances, the better. Therefore, it’s a good idea to look at a business valuation calculator to get a better idea of what your business is likely to be worth right now.

How Valuation Multiples Reveal Your Business’s True Market Strength 

Valuation multiples help to reveal a company’s market strength. It provides a snapshot of its value, relative to the key financial metrics, that allows for comparisons with similar companies. Here are a few ways in which multiples can show market strength.

1. Benchmarking against peers

Multiples like Enterprise Value and Price-to-Earnings help to compare your company to its competitors, helping you to understand if you’re over- or undervalued in the market as it currently stands.

2. Indicates investor confidence

A higher multiple will often suggest a higher degree of confidence from investors, willing to pay more for the business earnings or sales.

3. Highlights a competitive advantage

Businesses that have unique assets and a strong brand recognition can often command higher multiples because the advantages lead to more stable and predictable cash flows.

4. Signaling risk

A lower multiple can signal a higher risk to potential buyers, and this might be a result of a heavy reliance on the owner or a lack of a strong management team. This is helpful to know what needs improvement before sale, as the business should stand independent.

5. Demonstrates operational efficiency and growth potential

A strong EBITDA multiple can help in showing high profitability and operational efficiency. This is a key sign of financial health, too. Companies that have strong growth prospects will often be able to justify higher multiples.

Turning Valuation Insights Into Better Business Decisions

In order to turn valuation insights into better business decisions for the business, look at transforming your data into strategic action plans. Define measurable goals, making sure responsibility has been assigned to employees specifically, and set clear timelines. 

Improving your company’s worth is important, and the best practices start before you have any intention of selling the business. Utilize analytics and use it for the benefit of improving the company’s operations and decision-making in the future.