Essential steps for successful business valuation
If you are considering selling your business or exiting, valuating your business will help you determine the right selling price. Our expert consultants at TrustLink can help you with Company valuation in Qatar.Contact Us
To help you with this process, take into consideration the following steps to help you through this process.
Step 1: Prepare your business information
During this step, you’ll need to collect a wide range of business information to be able to successfully value your business. If you need help preparing your documents and cannot afford hiring a specialist, you can ask a friend or family member with experience in accounting for help.
On the other hand, most buyers may ask for an independent valuation of your business, so it’s good to be prepared. Keep your documents organized and arranged (this leaves a good impression, do not overlook it). If you need help preparing your documents, our expert Business valuation Consultants at TrustLink can assist you with Business valuation in Qatar.
Here’s a guide of the type of information you’ll need:
Finances and assets, including:
- Your financial statements (over the last five years, if possible) such as cash flow statements, debt, annual sales and profit and loss statements.
- A breakdown of physical assets such as machinery, buildings, equipment and stocks.
- Details of other intangible assets such as intellectual property rights (any designs or ideas protected by copyright).
Legal information, including:
- Legal documents such as lease agreements and insurance policies.
- Official registration papers such as the trade name certificate, licenses, permits and other papers that prove the company meets the legal requirements in the country.
Business profile, procedures and plans, including:
- Market conditions such as details about competitors and how they compete with your business.
- Sales information such as sales reports and future projections.
- The history of the company, including the date of commencement of business and any changes in the ownership structure or changes in the site.
- Documentation of business procedures such as marketing mechanisms, personnel list and customer service procedures.
- Business plans including marketing plans, expansion plans, contingency plans and risk management.
- Any other details such as working hours, or if the company is owned or rented.
Staff, suppliers and customers information, including:
- Information relating to employees such as job title, skills, experience, work history, performance appraisals and payments.
- Supplier details such as supply agreements and prices.
- Customer details such as customer numbers, profiles and direct marketing activities.
Step 2: Deciding whether to seek professional advice
You can hire a specialist like TrustLink as your accountant or business consultant to obtain professional advice on how to properly value your business. Our experts can help you analyze your finances, identify industry trends, calculate the value of Intangible assets such as goodwill and estimate future profits.
Another advantage of hiring experts is that they may have customers interested in buying your business, saving you time, costs and potential inconveniences.
Step 3: Choosing a valuation method
Here are some common approaches to valuing your business. If you decide to hire us, we will help you choose the most appropriate method and will explain an industry-specific method related to your business.
However, always remember that more than one approach can be used to value your business. You may also need to negotiate with buyers or financiers about the adopted method
- Assess the current marketplace value of your business
Business valuation can largely depend on the nature of the industry you operate in and the current marketplace value of similar businesses within that industry.
As each industry has its own rules when it comes to business valuation, you ought to do some research to better understand the industry before selling your business
- Using the Return on Investment (ROI) method
The return on investment (ROI) method uses your business’ net profit to work out the value of your business.
Return on Investment = (Annual Net Profit/Selling Price) × 100 For example, if the selling price is QR200,000 and the net profit for last year is QR 50,000 and you want to calculate the return on investment based on this price, you can use the previous mathematical formula to obtain the following result: Return on investment = (50,000/200000) × 100.
Your return on investment will be 25%
If you know the value of your return on investment, you can calculate the selling price, through the following mathematical formula:
Selling price = (net profit/return on investment) × 100
For example, if you’re looking for an ROI of 50% as a result of selling your business, and your net profits stood last year at QR100,000, you can calculate the minimum selling price as follows.
Selling price = (100000/50) × 100 In this case, to achieve a return on investment of 50%, you need to sell your business for 200,000 QR.
- Using business assets to value your business
After calculating the total value of your business assets, you can use this value to determine your selling price. Since calculating assets value can be a complicated process, you can use an accountant or financial advisor to help you.
What is goodwill in business?
Goodwill is an intangible fixed asset, as we mentioned earlier. This type of asset is very difficult to quantify. It has no fixed price in the market and covers:
- Customer relations and loyalty
- Brand recognition
- Staff performance
- Customer lists
- Work reputation
- Business Procedures
Since the valuation of this type of asset will be difficult, you should ask our financial experts to help.
If you are using your assets to calculate your selling price, do not overlook depreciation, which means the loss of asset value over time. For example, you may have purchased a computer for your business three years ago for 1000 riyals. When calculating your business’ asset value, the value of the computer will no longer be 1000 riyals as it was when you purchased it.
Step 4: Find out the cost of starting your business from scratch
The cost of starting your business from scratch can be used as a benchmark for valuing your business. This is the estimated cost to build a similar business in your industry from scratch within the current market. To calculate the cost, you’ll need to include all costs related to starting from scratch, including the costs of:
- Purchase of stock
- Purchase of tools and equipment
- Obtaining commercial permits and licenses
- Recruitment and training of employees
- Product development
- Marketing and promotion
- Buying or renting property
- Create your own platforms on the Internet
Step 5: Forecasting future earnings
Your company’s ability to generate future profits means a greater value for buyers. As a seller, you will be able to sell your business at the desired price if you demonstrate through your financial statements your ability to deliver large profits. This process gives the buyer a clear idea of what to expect in the future. To estimate future profits for your business, you can look at trends in your financial statements over the past years. You can also check trends for similar businesses in your area, so you can compare your business growth with other companies in the same industry. This information can be very useful when negotiating the final selling price.
Call us at +974 66332969 / 70303534 or email us at [email protected] for a free consultation with our expert Business consultants to conduct your Company valuation in Qatar.Contact Us
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