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If you own a small business or startup, it comes with a big responsibility to manage and run it in accordance with your budget, team size, and revenue scale. There is no secret sauce available to run a business perfectly considering the hugely populated and disrupted business environment of today in times of the internet and social media.
Small business owners are always busy as they have to manage everything from book-keeping to marketing, to client-side servicing and everything in between. Due to this, small business owners find it really hard to focus on growth factors in order to scale their business further. This is why business advisors recommend small business owners and startups keep track of their business valuation even if you are not aiming for getting your business acquired.
Benefits of knowing your business value
It is wiser to note that small startups and businesses are getting at a record rate globally. It has become imperative to keep recording your business valuation amid the fast-paced business ecosystem.
A lot of small-scale business owners fail to assess their company’s worth. If you’re investing a lot of time into your business, you should talk to an appraiser for business or an advisor who can help you figure out the value of your business.
The process of determining the value of your business isn’t as easy as it sounds. It is an expensive affair to get your valuation calculated, from hiring an investment banker, and having a business advisor on board.
Fortunately, there are online business valuation tools available to help you surpass the expenditure and hassle. You can now calculate the valuation of your small business in a few clicks.
Factors to take into consideration while valuing your company
Your business is made of numerous counterparts, it is important to price them appropriately. The following categorization makes the process easier:
- Tangible Assets
Your inventory, property and machinery. It is easy to determine the worth of these tangible assets. A charted accountant suits the bet for calculating appraisals and depreciation on these assets. - Intangible Assets
Your brand recognition, trademarks, and patents. These assets can provide immense value to your business and it is important to have an idea of the worth of the intangible assets you have. Besides this, important assets can include your business’s website traffic, mobile app userbase, social media followers, email lists and much more alike. - Liabilities
Obligations such as business loans, overhead expenses, marketing expenditure, employee salaries, etc. - Financial metrics
Your average annual revenue, profit or loss, year-on-year growth, and potential futuristic growth metrics.
When to get your business acquired?
There is a multitude of reasons when a business seeks acquisition, out of which, these three are the key characteristics signalling the need for acquisition.
- When a business doesn’t have the required capital
The growing startup ecosystem has its pros but cons too. It is well noted across various stats and studies that ninety percent of startups fail – meaning that every nine out of ten startups go astray. Only the ten percent make it to success and get acquired as soon as they reach breakeven. This simply signals that acquisition is not a bad thing in case you are unable to scale your business due to a lack of capital or funding. - Non-funded or bootstrapped businesses lack in value
Bootstrapping is being largely suggested as the best way to run your business or startup as it prevents any third-party intervention and you have a golden chance of experimenting with your product and business until the time you are bootstrapped.
At the same time, it is important to note that bootstrapped businesses lack in terms of their valuation as they are only made up of what the founders have invested and their revenue. On the other hand, when it comes to a business funded by external investors, venture capital firms, and angels – it possesses a good valuation and has ample capital to scale further and grow into a big company. - When a business is not performing well financially
A business or startup that you have started is certainly like your baby that you would like to pamper and make good use of it. But in case it is not performing well financially say for a couple of years or so, it is highly advised to get it acquired. There are times when trailblazers of entrepreneurship put their businesses for acquisition and then made new big companies with the amount they made.
A great example is Virgin Records of Richard Branson that was sold to EMI in 1992. The great billionaire entrepreneur Branson utilised the proceeds from selling Virgin Records into growing his other businesses including Virgin Atlantic, one of the biggest global airline businesses that we know today.
How to get your business acquired?
Many entrepreneurs spend too much time thinking about the outcome. Many get acquisition offers and don’t exactly know what to make out of those, and how to plan proceeds, etc.
Step 1: Determine whether you’re a competition
Though it is widely known that having a competitor in the market is a downside and one needs to come up with a unique business idea to succeed. But it is highly unlikely to be the case here. If your business is a competitor to other businesses in the marketing, you pose a direct threat to them. And there is most likely a chance that your business can get acquired by your larger competitor. Your competitors are always fond of your customers, data, and partner organisations. For a larger competitor, acquiring your business is a great investment.
Step 2: Build relationships with potential acquirers
Private equity firms like to convert threats into promises. Investors of a particular business or startup keep their eyes on potential threats and turn them around – making a good acquisition deal warranting mutual benefits.
In today’s time, you are not required to put a ‘for sale’ sign or make any announcements in case you are seeking to get your business acquired. Rather, pursue building relationships with venture capital firms, angel investors, startup accelerators and incubators who have funded your larger competitor companies. You can utilise open platforms like Crunchbase to conduct research on both your competitors and their investors.
You’ll be shocked by how little you must divulge to get attention from prospective buyers especially if you’re able to share market share and revenues.
Step 3: Guard yourself
It is important to warrant the safety and security of your assets. Your business is made of your years of ideation, hard work and relationships. You are always advised to hire an attorney in order to safeguard your interest while making an acquisition deal. That lawyer will help you scan any documents that are presented in front of you by an acquirer.
Also, having an investment banker is essential. The person will be able to back your calculations and present them with proof in front of the acquirer, conduct due diligence – preventing the conservative approach of the acquirer while valuing your business from their end.
Over to you
So that is my two cents of calculating your business valuation and getting it acquired. Hope you would find this information worthwhile. And I’m all ears to your thoughts and experiences in the comments below.
