Value of Your Business
So, what exactly is a business valuation?
In plain English, a business valuation is a
process in which you find the true value
of your company. The major assumptions
in any valuation are what the future cash
flow is and what the risks are related to
that cash flow. There are a number of key
value drivers that help shed light on the
overall business value.
Key Drivers In
A Business Valuation
A business valuation enables you to
identify the key drivers that will increase
the value of your company. You can
determine how measurable changes in
these value drivers will affect the overall
value. The following are the three major
areas where you can focus on in order to
increase business value:
• Increase your sustainable cash
flow. Investors buy future cash flow,
so increasing the future cash flow of
your business will increase its value.
Investors love to buy cash flow
that is sustainable and can grow in
the future.
• Lower the risk associated with
your business. A major factor in
determining the price paid for a
business is the required rate of return
required by the buyer. The more risky
the investment, the higher rate of
return needed to entice a buyer. There
is an inverse relationship between
value and the required rate of return.
It is important that you understand
your risk areas and take steps to
reduce them.
• Increase the annual growth rate.
The expected growth rate of the
future cash flow levels will impact
the value of a business. The higher
the growth rate, the higher the value
of the business. You can increase the
value of your business by focusing
on profitable and sustainable growth.
also benefit from more cash in your
pocket, improved employee attitudes
and increased customer satisfaction.
The Bottom Line
So your ultimate goal is to maximize
your business’s value, right? How can
you do this? You need to increase
future cash, decrease business risk
and increase growth opportunities. For
example, every dollar you create through
a business valuation process can increase your overall value four to five
times. If you can increase your bottom
line by $100,000, your value can increase
by up to $500,000. This provides more
income for you now and a bigger payoff
down the road. Sounds nice, right?
So what are you waiting for? Get to know
your business’s value today by scheduling
a business valuation.
Positive changes to these drivers will
affect your overall value. You could
5