If you've been in business for some time, your company may have grown significantly. You know that you need to move up to the next level to keep ahead of your competition, however, and to do this, you may have to raise some additional money or bring in some outside investors. Therefore, you will need to gather a lot of information together so you can show these other entities just how valuable your business is and persuade them to become involved. How should you go about this?
Unfortunately, there is no hard-and-fast rule that can help you to place a precise value on your business, as it's not always based on a bookkeeping valuation.
For example, you may be able to come up with a 'net asset' picture that determines how much equity is left in the business once all the debtors and creditors are taken into account. You will need to determine a fair market value for all of your assets, such as stock, equipment, vehicles and so on and take away any money that you may owe for hire purchase. You'll then have to deduct any money that you owe long-term creditors, the tax authorities and so on, as reported on your books.
You may be able to value your business based on its potential earnings. To arrive at such a figure, you will have to look back at your historical earnings performance, figure out your current expenditure and income and understand your cash flow restriction. You can also look at your net earnings before corporation tax, depreciation or amortisation and multiply this by a 'goodwill' factor. This is somewhat subjective but is often used when putting a business on the market for sale.
Making a Decision
Once you have determined what the business is worth, other entities may judge whether they should invest based on longevity and potential for return. You need to make sure that you can afford to repay them while still making a profit and, crucially, while ensuring there is enough money in the bank. Cash flow is one of the most challenging elements for most business owners, and it can often mean the difference between success and failure.
Looking at the Books
You must ensure that you keep accurate records, as a potential investor will always want to see that you have your finger on the pulse. Consequently, your bookkeeper will be a crucial part of this equation. Contact a bookkeeping professional to learn more.