 3e) The Buyers Valuation: What to Expect The value that you place on your business, whichever method you choose, will more than likely never be the price that you receive: it merely forms the starting point for negotiations.
You should therefore add a little to the price, say, 5-10% as you can always expect the buyer to try and negotiate a lower price, even if they feel they have found a bargain.
The buyer will not value the business until they have seen the business inside and out. After which, they will involve their accountant or broker (if using them) to help reach a realistic value for your business. It is likely that they will use a different valuation method to the one you have used, as quite often buyers will find a value that compensates for the expected return they hope to receive by investing in the business. To support the above comment, buyers will always have a keen eye on the future performance and profitability of your business: after all, why else would they want to buy your business. You should therefore prepare to be offered an amount that reflects how profitable your business is expected to be in the future.
At the end of the day, you have to acknowledge one important rule of valuation: a business is only worth what someone is willing to pay for it. 3f) External Factors Affecting a Business Value There are certain external factors that you have no control of that can fluctuate a businesses value. It is therefore important that you recognise these factors to help you generate a higher value for your business. Arguably, the most crucial factor will be the current market demand for your product or service (possibly for the industry as a whole): if demand is low, it will suggest poor profitability and so it would be wise to put sale plans on hold until demand becomes more favourable.
Interest rates can also have an affect on your business value. If rates are high, the cash flow will be affected, as any outstanding debts will incur bigger charges. As a result, the best time to sell a business based around external factors is when the stock market is high and interest rates are low.
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