A question of price or value?
Do you want to sell or take over a business?
The first step is to estimate its value. But how to do it ?
The value of a company is an estimate of its profitability and prospects. It is determined by a set of factors, including:
- Company assets, such as machinery, buildings and patents;
- Company profits, past, present and future;
- Competition in the company’s sector of activity;
- The general economic outlook.
The price of a business is the amount the buyer is willing to pay for the business. It is determined by a set of factors, including:
- The value of the company;
- The buyer’s motivations, such as the search for profitability, growth or diversification;
- Market conditions, such as demand and supply of similar businesses.
The value of a business
The value of a business is determined by a number of factors, including:
- The company’s assets, such as its property, equipment and patents;
- Company profits;
- The company’s growth prospects;
- The company’s sector of activity;
- Market conditions.
There are a number of business valuation methods that can be used to determine the value of a business. These methods include the assets method, the profits method and the comparables method.
The price of a business
The price of a business is determined by market forces and negotiations between the seller and buyer. The price may be higher or lower than the value of the business, depending on the market situation and the objectives of the seller and buyer.
For example, a seller may be willing to sell their business for less than its value if they need cash quickly. A buyer may be willing to pay more than the value of the business if they believe the business has significant growth potential.
The difference between value and price
The difference between value and price can be significant, particularly in the case of growing or struggling businesses. It is important to understand the difference between these two concepts so that you can negotiate a fair price for a business.
There are three main methods of valuing a business:
- The patrimonial approach : it consists of evaluating the assets of the company and deducing the value of its debts. This method is based on the idea that the value of a company is equal to the value of its assets, minus the value of its debts.
For example, a company that has assets worth 100,000 euros and debts of 50,000 euros will have an asset value of 50,000 euros.
- The return approach : it consists of estimating the company’s capacity to generate profits in the future. This method is based on the idea that the value of a company is equal to the amount of future profits it will generate, discounted to the present.
For example, a company that generates profits of 10,000 euros per year and has a discount rate of 10% will have a return value of 100,000 euros.
- The comparative approach : it consists of comparing the company to other similar companies whose value is known. This method is based on the idea that similar companies have similar values.
For example, if a company in the same industry and similar size has a value of $1 million, then the company you want to value will likely have a similar value.
Be accompanied
Valuing a business is a complex process that requires specific skills and expertise. It is therefore important to be accompanied by a qualified professional to obtain an accurate estimate of the value of the company.
Intangible Capital Value is an agency specializing in business valuation. It is one of the only agencies to dynamically integrate holistic value, including intellectual property, to defend business value and price.
The advantages of receiving support are numerous, including a more precise estimate of the value of the company, a better understanding of the factors which influence the value of the company, assistance in negotiating the sale price and better preparation for the sale or takeover of a business.
Intangible Capital Value offers a range of business valuation services including assessing the value of a business for sale, assessing the value of a business to buy, assessing the value of a company in difficulty and the assessment of the value of a growing company.
In conclusion, being accompanied by a qualified professional is the best guarantee of obtaining a precise estimate of the value of the company.
Examples
Heritage approach
A company that owns tangible assets (machines, buildings, etc.) and intangible assets (patents, brands, etc.) can use the asset approach to assess its value.
For example, a company that owns machines worth 50,000 euros, buildings worth 100,000 euros and patents worth 20,000 euros will have an asset value of 270,000 euros.
Performance approach
A company that has a track record of profits can use the yield approach to assess its value.
For example, a company that has generated profits of 100,000 euros over the last three years and has a discount rate of 10% will have a return value of 1 million euros.
Comparative approach
A company that wants to compare its value to other similar companies can use the comparative approach.
For example, a business that is in the restaurant industry can compare its value to other similar restaurants in the same area.
- Consider the size of your business. If your business is small, the legacy approach may be the most appropriate method. If your company is larger, the performance approach or the comparative approach may be more suitable.
- Consider your company’s industry. Some industries are more difficult to value than others. For example, technology companies are often valued based on their growth prospects.
- Make sure you have access to the necessary information. Some valuation methods require specific information, such as company profits or multiples of similar transactions.
- Define your assessment objectives. Do you want to determine a sale or redemption value? Do you just want to get an idea of how much your business is worth?
The valuation of your business is an essential step in the sale or takeover process. It is important to choose the evaluation method best suited to your business and to be supported by a competent professional.
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