There are a number of reasons you may want to know the value of your business. Whether it be for selling purposes, like determining a sale price for potential buyers, or simply gauging yourself against the competition, developing a strong understanding of your business worth is crucial. There are numerous factors that go into small business valuation, as well as numerous methods for actually calculating your business’s value. By breaking them down, you can gain a better understanding of the current state of your business and how it may evolve in the future.
What Factors Go into Business Valuation?
Before diving into the many different methods of business valuation, it’s important to cover the key factors that are considered when calculating value.
1. Profit margins
One of the most important metrics lies within a company’s bottom line. In general, a company with a large profit margin will typically command a larger valuation at the end of the day. This is because a higher profit margin typically signals a stronger control over costs, which can help result in a higher EBITDA (earnings before interest, taxes, depreciation, and amortization), and a higher net profit.
2. Industry outlook
No matter how strongly a company performs on its own, being in a failing industry can have a drastic effect on the value of the business. Evaluating the overall outlook of an industry is a key step in your company’s valuation.
3. Staff and management
The staff and management of a company may not seem like they would impact a business’s worth, but the leadership and employees of a company drive the future of a company.
4. Concentration
If a business has too many customers concentrated within a single industry, disruptions to that industry will impact the entire customer base of the business.
5. Historical earnings
Looking at the past earnings of a company is a key step in most business valuation methods, as it can help guide expectations toward future earnings. The above factors are just a portion of what’s considered when evaluating the current value of a business, but they are some of the most important to look at.
Finally, the market value approach to business valuation focuses on taking the value of recently sold comparable businesses and assets. These comparisons are then adjusted for different quantities, quality, or sizes of goods with other companies. Typically, the strategies used for a market approach to valuation are public company comparables, which look at similar metrics from publicly traded companies, or precedent transactions, which look at observed transactions in the same industry as the company.
The intricacies of business valuation can be difficult for even the most experienced business owners and entrepreneurs, and an inadvertent sense of bias can influence anybody’s valuation of their own business. Given this attachment and the challenges that a business owner can face, receiving a professional valuation is always an excellent idea. Here at General Efforts Consulting Ltd, we understand the importance of an accurate valuation. Contact one of our General Efforts Consulting offices near you today to schedule your valuation!
You know you want to take the leap and become your own boss, but – into what? Making a business idea into a successful business is more than luck, and addressing your strengths, goals, and limitations is a critical piece of the puzzle. Unpacking the following questions can help you answer the biggest question: What kind of business should I start?
How to Know What Business to Start
If you’re considering starting a business, the possibilities can be overwhelming. Real estate, pet sitting, eCommerce shops, consulting businesses, coffee shops, landscaping businesses, event planning; whatever your skill set, you can find a business opportunity that aligns.
As you weigh out your entrepreneurship options, it’s important to take both subjective and objective factors into account. From the basics (What do you know how to do? What do you like?) to the more complex (Is there a demand for your idea? Do you have the working capital to support it?), there is more to your success than a great business idea. The following can help you begin determining what the right business opportunity looks like for you.
1. What am I passionate about?close up of hands brainstorming business ideas
Being a new business owner can mean early mornings and late nights, particularly in the early years. To get over those initial hurdles, you must pursue a type of business that you’re genuinely interested in. What gets you out of bed in the morning? What fascinates you? Your primary motivation at this point should not be to make money, as most new businesses take two to three years to become profitable.
2. What experience do I have?
Of course, passion for nuclear physics can only take you so far; experience matters, too! Consider your education, experience, and skill sets and how those can play into your work as an entrepreneur.
3. What resources and time do I have available?
As you start to narrow in on small business ideas, you’ll also want to look at your current availability. Will you dive into your own business full-time or wade in part-time as a side hustle for a while? From small businesses you can run out of your own home, like dropshipping and dog walking, to online businesses like freelance writing, bookkeeping, and graphic design, there are many ways to dip your toes into the world of entrepreneurship. Knowing how much risk you can take on, what resources you can put forward, and how much time you can put in can help you start working on a realistic business plan.
4. What lifestyle do I want?
You’ll also want to consider what you want out of the business long-term. Do you enjoy a hands-on approach, or are you looking to generate more passive income eventually? Finding an idea and business model that makes sense for your goals is crucial to being content with your decision.
Do I have a way to test my idea?
It’s easy to have a great idea on paper, but before you take the leap, ensure that your vision is viable. You can start to determine if your business idea is in demand by surveying friends and family and looking to the internet. Is there a gap in the market for the solution you’re proposing? Is it feasible for you to prove your idea fairly quickly?
5. How much capital can I access?
82% of businesses that fail do so because of cash flow problems. Not only do you need to find a way to cover the startup costs, but you’ll need working capital to keep up with the day-to-day as you work towards a profitable business model. There are several different funding options you can explore.
Starting a small business is no small feat. Depending on your vision and circumstances, you may want to consider whether purchasing an existing business is right for you. By buying a business, you can bypass some of the challenges of a startup, increase the potential that you’ll be able to qualify for business loans, tap into an existing customer base, social media presence, brand, and more! If you’re considering buying a business in the new year, the professionals at General Efforts Consulting Ltd can help. With locations across the United States, we can help you find the right opportunity for you in any market. Find a General Efforts Consulting Ltd near you to get started!
Creating a financial plan is often perceived as a conscious effort in putting your money in order to attain financial objectives. It is a step-by-step process to help business owners meet their life goals. It is so much more than that. There are certain other things to consider when beginning your journey in financial planning.
Some buyers can swoop in and bring a business back to its glory days or even better. However, if this is something you’re interested in doing, it is very important to consider all the financial and structural aspects of a company to ensure you don’t acquire a total lost cause. Continue reading to learn about the signs a company is in financial trouble.
What Determines Financial Distress
Typically financial distress begins to take hold of a company when its income no longer meets its financial commitments. Usually, a company’s financial trouble is accompanied by high fixed costs, illiquid assets, or revenues impacted by economic downfalls — not to mention damage to its reputation and creditworthiness. Evaluating a company’s financial situation requires you to look at past, present, and projected data. While these signs are not always a definite red flag, they should be heavily considered so you have a better idea of what you will take on if you go through with the purchase.
1. Cash Flow Problems
Insufficient cash flow results from a company spending more than it takes in. Liquid cash can run tight for understandable reasons, like seasonal fluctuations or recent restructuring, which aren’t a significant concern. However, you’ll want to be alert to gaps and low earnings patterns and what they stem from.
A cash flow statement is one of the most telling financial documents in evaluating a company’s financial health, so make sure you take the time to review it thoroughly. And, don’t hesitate to reach out for help if you have questions about what you’re looking at.
2. Low Profit Margin
It’s said that low margins are usually the first sign of difficult times. Low margins indicate that costs are too high or sales prices too low, which aren’t sustainable in the long-term, especially when you consider that this means lower net profits and wages for employees. Sometimes, decreasing sales costs can be a strategic move by a new business owner to sell more units. Others may be able to streamline operations or cut manufacturing costs. In any case, it’s worth evaluating if and how likely it is for you to increase revenue.
3. Weak Sales Growth
Instead of solely measuring how a company is growing, you should also look at its capacity to grow. Perhaps the current owner doesn’t have the time or resources to invest, or they may not be capitalizing on the right opportunities. But, if the company’s ability to grow seems lacking — be that in sales or internal — there is a good chance that it is not doing well. Sales growth is one of the biggest indicators of how the market responds to products or services. If, through diligent work to try and increase it, there’s a probability that the business would not grow, you may want to consider its viability in the market and whether it has enough customer backing to support it.
4. High Turnover
While a high employee turnover rate is not always an indicator of a distressed company, if you see it has become a trend, coupled with any previous signs of financial distress, it might suggest something is awry within the company. It can also be pretty telling if high-ranking executives are coming in and out at an unusual pace. Usually, this indicates concerning amounts of uncertainty among board members about the company’s viability. No matter what you are looking for when buying a business, it is of the utmost importance to understand its financial position and consider whether it will affect the next steps of your purchase or if you even move forward with the process.
When you work with General Efforts Consulting Ltd., they can help you determine if a company is in financial trouble, break down their valuation, and make sure you’re on the right track. Working with General Efforts Consulting Ltd is a great way to ensure you understand all aspects of the buy and aren’t left with any outstanding liabilities. Contact your local General Efforts Consulting Ltd office today for a consultation to learn more about how we can guide you through the process.
It’s almost expected that current employees will be wary of new management. And their fears are valid. Are their jobs safe once you take over? Even if so, are you bringing in new employees who could disrupt the flow of things?
Business sales, inconsiderate new owners, and significant procedural changes. Ultimately, the best thing you can do is be as transparent as possible, even in worst-case scenarios. The following tips will help you have a smooth transition and ease existing employees after buying a business.
How to Manage Existing Staff When Buying a Business
Earning your new employees’ respect is important, but you’ll also need to earn their comfort. Scattered employees will make for a scattered workplace, and that’s the last thing you want to deal with after buying a new company. Assuming you want to retain the existing employees, the advice below will help curb that.
1. Meet with Key Employees
You should try to meet with as many employees as possible — not just higher-level management and other decision-makers. The best-case scenario would be to have face-to-face meetings with each department on its own, so they have room to discuss their specific concerns, and you can find what motivates them. If employees work remotely or your staff is too large to do this productively, you could create a sample size of employees from each department. Your managers could point you to who to speak to. Once there, you should use this opportunity to begin relationship-building so your new employees start to trust you.
If your team is remote, it is still of high importance to meet with employees virtually. This is an even more delicate situation, but ongoing communication can help reduce anxiety and uncertainties!
2. Remuneration
Money isn’t everything — but it’s up there. Now would be the time to evaluate your employee’s salaries and see if there is room for improvements. This may sound extreme, but retention is of the utmost importance in today’s job market. Salary is a non-negotiable when it comes to their satisfaction. Generous and thoughtful leaders have a much better chance of keeping their employees, so bear in mind the type of long-term investment this would have, i.e., less time and resources spent on recruiting and training!
3. Respect What’s in Place
A little humility can go a long way when acquiring an existing business. Of course, it is your job to lead, but that doesn’t mean that your input and expertise are all that matters. After all, these people have been with your company a lot longer than you have and will most likely have good insight. Perhaps, the former owner didn’t take their considerations seriously, so you may not even be aware of their thoughts and feelings towards specific processes. As we mentioned before, it’s important to find out what is and isn’t working, and if they identify pain points, it would be in your best interest to listen. On the converse, if they’re happy with a process or operation, it may not be the time to make a major adjustment unless you can really justify doing so.
4. Getting Their Sign-Offnew owner in employee meeting
For any adjustments that affect your employees, especially regarding their salaries, benefits, or general terms of employment, you’ll need to get their approval beforehand. If not, you could be sued for breaching employment contracts. Even if a particular detail seems small, it could make a difference, so playing it safe is always your best route. It’s unpleasant. But, new business owners have to be brave and smart enough to know when to let go of underperforming employees.
From a managerial side, you’ll want to review what contracts are in place for the particular employee(s). (Now would also be a good time to consider setting up non-competition contracts for employees you’d like to retain.) You should also be extremely specific about why you’re letting this person go and make sure your reason checks out. Try to end on a positive note, and if you can, help find new employment. Also, consider the impact this will have on existing employees. You should work quickly to replace this role and reassure your staff that their jobs are safe.
Determining what to do with existing employees after buying a business is one of many considerations you’ll have to make. For the things that don’t have to fall back on you, you can depend on General Efforts Consulting Ltd. We’ll step up and navigate much of the business buying process for you so you can prepare for what’s ahead. Locate your nearest office to get started!
