What is Your Business Really Worth?
It’s normal to get excited about your first business. You proceed to buy some fancy furniture, set up a nice waiting room, revamp the office and equip it with the latest gadgets, or even place some expensive action figurines to brag. You would think that, at some point, these details might truly help jump start your venture.
The sad reality is that it doesn’t really matter how much you invested in a company. Assets are not what determines the true value of a company, otherwise, you’d just be selling a good-looking establishment.
A business’s worth is determined after an arduous and exhaustive business valuation. New York City business brokers who are worth their buck will ask for financial statements, balance sheets, cash flow data, and a plethora of records in order to get a hint of the company’s profitability and growth potential. Contrary to what many would believe, these are highly objective metrics that will ultimately make a huge difference in a given business valuation.
New York City, despite its shortcomings, has one of the most competitive business-selling markets in the country. Hence, It takes a lot more than just showing furniture and gadgets in order to make a good sale. Even If you had all the trappings of a successful company, if you can’t manage to demonstrate your success with tangible financial data, no serious investor will show interest in what you have to offer.
What Actually Affects Business Valuations NYC
A detailed business valuation would take into account both internal and external data.
In terms of internal data, revenue is an important indicator, but not just revenue in and of itself. A company’s potential is truly manifest whenever there is recurrent revenue or revenue growth.
However, we should not overlook other factors such as market share, sales pipeline, customer portfolio, organization, and, yes, even infrastructure and assets (though they’re not decisive factors by a long shot!) Think of these factors as levers. The value you’ll get will be determined by how you go about moving those levers. This analogy will hopefully draw a more comprehensive picture of how you’re supposed to understand the term “value” in this context.
It’s true that market sentiment plays a big role in driving the price of your venture to interesting levels. Most people inside the markets are amateurs and not very savvy at measuring raw data, and there is a sweet spot wherein emotion can push the levers described earlier, albeit just slightly.
Some would take the extreme view that a company is worth whatever people are willing to pay for it, just as with any other asset. This is not entirely inaccurate, though there is some truth to that statement. Valuation is oftentimes performed using relative methods that look at the value of recent business sales for reference. This comparative assessment could be dangerous if not coupled with other variables, though.
Don’t perform a DIY business valuation. New York City is filled with competent business brokerage firms that could offer an honest evaluation of your company’s value and provide counsel throughout every stage of your negotiations with potential investors.