‘What is my business worth?’ This is one of the most common questions that business owners ask me. To most business owners, the idea of an outsider getting away with paying too little for their ‘baby’ is galling. Therefore, the aim often becomes getting the maximum amount possible for the business.
The question I often ask in reply is, ‘What do you need it be worth?’ You need to answer both questions if you’re going to put together a realistic succession plan. So, whether you’re planning to sell outright to an outsider, or considering going down an employee ownership route (like ISOP), you need to get a clear idea of the value of the business to inform your succession plan.
There are hundreds of ways to value a business. In my experience, the most common way is using the formula: business value = profits x price earning ratio
To read the rest of this blog, which is based on an extract of Andrew Gray’s book Do More of What You Love: The New Approach to Business Succession Planning – go to here