Uncertain About How Much Your Business Is Worth? Read this

The best advice I can give on this is a simple three-letter word: ASK!

However, the trick here is knowing: what to ask, whom to ask and the most important bit - when to ask.

What to ask: "If I were to sell my business to you - hypothetically speaking, how much would you be willing to pay for it?"

You may then go ahead to share high-level data with the other party. This will give them a sense of the size of your business (number/distribution of customers, annual turnover, etc. - but be careful not to reveal any 'business secrets"). The objective here is to get an indication/hint of your business' value and not a precise number.

Whom to ask ( it is not just anyone): Ask those who can potentially buy your business. Not because they can afford to, but primarily because it would add value to theirs in some complementary way. Your supply chain is a good place to seek strategic partners.

For example, if your business plays in the retail space, your suppliers might be willing to consider an acquisition in order to execute their DTC (direct-to-consumer) strategy.

When to ask: If you read the newsletter yesterday, you may know where this is going already. Start asking way before you actually need to sell. The phrase "invest in inspiration and not desperation" didn't emanate from nowhere.

Remember, this is more of a learning exercise for you as a founder than an actual investor pitch. If used strategically, this exercise could provide insights into how potential trade partners value your business and what assets they would be willing to pay a premium for.

Other ways of conducting a valuation exercise include:

1. Research: Research the market to understand how similar businesses are valued within your industry. Look at recent sales of comparable businesses and gather insights from industry/research reports to gain a better understanding of the general valuation range.

2. Financials: Analyze your company's financial statements, including balance sheets, income statements, and cash flow statements. Accurate and up-to-date financial data is crucial for determining the value of your business.

3. Earnings and Cash Flow: One common approach is to value a business based on its earnings or cash flow. This could involve using metrics like Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).

4. Asset Valuation: If your business primarily holds valuable assets such as real estate, equipment, or intellectual property, an asset-based valuation could be appropriate. This involves determining the value of your tangible and intangible assets minus liabilities.

5. Industry Multiples: Certain industries have common valuation multiples that investors and buyers use to estimate a business's worth. Research industry-specific benchmarks to get a rough estimate.

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