How To Value A Company For Sale


When you are looking to sell or buy a company business, ensure that you get a fair price that allows clearing of all pending debts and also helps you to gain a respectable return from the investments that you make. It is therefore essential that you learn how to value a company for sale.

Look At The Value of The Company From The Market’s View

The first factor essential for the evaluation of a business’s worth is to ascertain the ‘law of supply and demand’ with respect to the company that you are looking to buy.

Begin with valuing the sales figure of a similar business house in the area. Comparison will help you to decide on a base price from which you can set the cost or selling price of a company.

There are two basic ways of valuing assets- income capitalization and liquidation value.The other important factor that helps to decide a company’s worth is the kind of customer base it has established in the market.For instance a small company with a loyal customer following stands more profitable than a large company that cannot be sold off easily.

Take Account Of The Company’s Financial Standing

This requires you to draw a clear picture of the net income that the company enjoys. There are several financial models that will help you to compute the total earnings. “Seller’s Discretionary cash flow” and “owner benefits” are the two popular models that are followed to compute the profit of a company.

Both these models take into account factors like pre-tax profit, interest, depreciation, owner’s salary and other financial benefits that are to be adjusted with the net income.

You will have to examine the previous and present income statement of a company when determining the net income of the company after other benefits of the company’s financial book like premiums for insurance, company cars, personal expenditures etc; are cut off the net profit. For ensuring a smooth tax audit, take the help of a professional accountant to evaluate any discrepancy in the company’s financial statements.

Calculating The Multiple

In business terms, calculating the multiple means increasing the figures for cash flow by an existing market multiple.The multiple usually varies in between one and three. This will give you the base price for a company’s worth.

There are two basic factors that determine the multiple factor. Firstly, comparing the market range with the calculated income expected from the company. Secondly, consider the nature of the business. For instance, smaller businesses benefit in having fewer competitors and therefore attract small market multiplier. High risk businesses too attract small multiplier.

Consider Sale Factors

When the seller of a company demands hard cash, you can always bargain for a lower cost price.The other sale factor that has to be taken into account to value a company is the amount of down payment expected versus the number of installments. How to value a company for sale will largely depend on your understanding of the above factors.

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