How to Value Your Australian Business

Have you been considering selling your Australian business? Knowing the value of your business is important, whether you are selling or even borrowing against the business; but how do you value your business?

There are plenty of reasons for wanting to know the value of your business - the price you can expect when selling, loaning against the business, finding out where the strengths and weaknesses are, identifying areas that need improvement, or working out whether your business is sustainable in the long term.

Depending on where in the business lifecycle you sit, your reasons to utilise an independent professional valuer will differ. For those looking to grow, the value can assist in gaining capital from investors and setting share price buy-ins for employees. For business owners looking to sell, it can help set a realistic sale price, as well as helping set up an exit strategy.

Tips for Gaining a Good Valuation 

Every business owner wants to know how they can increase the value of their business, after all, more value means a better sale price. Here are some top tips on how you can gain a better valuation.

Diversified Customer Base

As business owners, we love loyal clients. However, if you are selling your business, you don’t always want one dominant client. Why? Because if you happen to lose that client, you lose a big portion of your business income. Consider someone buying your business. They are looking for a diversified client base where no single customer accounts for more than approximately 10% of your business income.

One of the biggest concerns to buyers is losing the customer base you have built up when those customers learn of the sale of the business. Before putting your business on the market, take the time to build and diversify your customer base.

Improving Cash Flow

Having a business that makes money is the goal, but having a business that increases its cash flow year on year is more valuable than one where the cash flow stays the same. The increasing cash flow shows growth in the business, and a growing business is a good business.

Improving Your Team

If you run a larger business, having a team that works cohesively to make your business a success is important. While the executive team is generally the most important in this factor, you also need to consider your staff that are “on the floor”. These are your staff that are customer-facing or those that do the day-to-day work.

Building a team that is strong enough to continue working at a high level after the sale of the business is highly valuable.

Long Term Planning

You might be considering selling your business but that’s no reason to not have long-term plans in place to grow the business. A business is more valuable if there are long-term plans to increase revenue in the coming years.

It is best to sit with your accountant and work on producing high-quality, quantitative, and qualitative forecasting that is substantiated and indicates the possibility of future results. A buyer needs to see the potential for growth and the better that potential, the more value that lays within the business.

Selling your business can be a competitive and drawn-out process. With businesses hitting the market every day, having a valuable business model with sustained past growth and potential for future growth is important. Having your business valued professionally is a great starting point. The best place to start with this is a free business valuation tool that can tell you if you’re on the right track.