What is my company worth? How to determine the value of your company
Why is business valuation important?
A business represents more than sales and profits. It is often built up over years, with people, relationships, reputation and growth potential. This is precisely why it is important to look not only at the numbers, but also at less tangible aspects such as market opportunities, dependence on the entrepreneur and strategic value for buyers.
An educated valuation:
- forms the basis for a sale or transfer process;
- Helps in attracting investors or funding;
- prevents unrealistic expectations on the part of you and the other party.
How do you determine the value of your business?
There are several methods to determine the value of a company. Florijnz always makes a customized consideration depending on the type of business and its stage. The most commonly used approaches:
1. The asset approach
With this method, you look at the balance sheet value of the business: assets minus liabilities. This is especially suitable for capital-intensive businesses or when closing down a business. For active, profitable businesses, this is often a lower limit.
2. The profit or cash flow method
This approach looks at future earnings or cash flow and discounts it to current value. In other words, it is not about what you have, but what you will earn. Important factors are:
- historical results;
- growth potential;
- Risks (such as dependence on one customer);
- market trends.
3. The market approach
This involves looking at comparable companies that have recently been sold. This provides guidance, but remains tricky: no company is identical, and transactions are rarely fully transparent.
In practice, we at Florijnz combine multiple approaches to arrive at a realistic, defensible value.
Common misconceptions in business valuation
- "My business is worth as much as someone is willing to pay for it." True: but without good substantiation, you are at the mercy of negotiation.
- "I'm turning a profit, so it's all right." Not necessarily. If your business relies heavily on your personal efforts, that can actually lower value.
- "An accountant can value too, right?" Accountants mainly look back, while business valuation looks ahead to opportunities and risks.
What does a good valuation yield?
A professional valuation:
- Gives direction to your strategic choices;
- Avoids disappointment or hasty decisions;
- offers grip during negotiations with buyers, investors or family members.
In addition, it increases your credibility. Whether you are selling to an outside party or transferring within the family-a business valuation shows that you are serious.
What can Florijnz do?
Florijnz assists entrepreneurs in small and medium-sized businesses in valuing, buying or selling their business. We combine financial expertise with years of experience in various sectors. No standard report, but a customized analysis-always with an eye for the person behind the numbers.
Wondering what your business is worth?
Check out our page on business valuations or contact us for a free consultation.
