Concept of Business Calculator
Business calculators help business owners to value their business at any point in time. Along with knowing the annual turnover, it is also important to know the worth of your business. The valuation process helps you establish the market value of your business. This market value helps the business owners to negotiate with the customers.
Valuing your business has other benefits also as it helps the business owners to understand the financial position of the business and then take the financial decisions accordingly. After the valuation of your business, you can also make a decision of expanding your business.
Ways to Calculate Business Worth
Calculating the worth of your business is a complex task so the owners need to ensure that they understand the process properly before valuation.
The business owners can ask various business brokers to help in the valuation of their business or there are various business calculators available online, the owners can calculate the worth of their business with the help of the business owners as these are simple, quick and easy to use.
But, the owners should prefer consulting the business owners as they will provide the accurate valuation of their business and reduce the chances of over and underestimation.
Working of Business Valuation Calculators
Online business calculators can instantly provide you with the value of your business. There are various methods for calculating the business value. There are several factors that affect the calculation of your business valuation. These factors include the size of your business, no. of employees, location of your business, company type and the financial position of your business.
These Business Valuation Calculators provide an approximate value of your business so for knowing the accurate value of your business, consulting a business valuation expert is a good option.
He will tell the worth of your business as per several factors such as the growth potential of your business as well as of your business and your website traffic.
Factors affecting the Business Valuation Calculators
The tangible assets of the business can be valued easily but the valuation of intangible assets is a complex task. There are various techniques with the help of which the valuation of the intangible assets can be done.
The various other factors that affect the value of your business are the reputation of your business, the nature of products you trade, your staff, trademarks of your business and the circumstances under which that valuation had been done.
Approaches for Business Valuation Calculation
Entry Cost
This is a simple approach as the business owners just need to figure out how much will it cost them to start a similar business to the one that is provided for valuation.
The owner needs to take into consideration every factor, the start-up expenses, cost of tangible and intangible assets, setting up warehouses and offices, recruitment of potential staff and their training expenses and searching for prospective buyers through campaigns or social media platforms.
Then after its valuation, the owner needs to subtract any savings that could be done by using cheaper material or changing the business location from the expenses.
The value received after subtraction will be the worth of your business.
Industry Rules
Several industries have pre-defined rules for the buying, selling and valuation of businesses. In this approach of valuation, the owner will have to value the business according to the rules set by his industry.
The rules can differ from retailers and wholesalers as the valuation of a retail business can be based on the number of customers he has, the numbers of outlets and its turnover.
This approach is easy and effective as it has standard rules for valuation that are the same for all the business owners in an industry.
Cash Flow Approach
In comparison to other approaches, this approach is complex as there are future assumptions about the business and the valuation is done based on these assumptions.
So, industries that have stable and predictable cash flows in the future opt for this approach only. This approach focuses on the calculation and estimation of the future cash flows that will be worth today. This calculation can be done by adding the dividends of a specific period to the residual value at the end of that period.
The discounts rate is the value that is accountable for the risk associated and the time value of money. The time value of money has an assumption based on the earning potential that the value of £1 today is more than the value of £1 tomorrow. Usually, in different industries, the discounted rate ranges from 15% to 25%.
P/E Ratio Approach
Businesses those good records of profits use this approach for the valuation of their business. It is also called multiples of profit or Price to Earnings Ratio. If the records of profits of a business are good, then it shall have a higher P/E ratio. The amount of profits determine the P/E ratio as the higher the profits, the higher will be the P/E ratio and vice-versa.
In most cases, the business owners of tech industries have higher profits as these industries have already achieved growth in the market while on the other hand; business owners of estate agencies usually have low P/E Ratios. Various newspapers provide information about the P/E Ratio and the profits of the companies.
Valuation of Tangible Assets
The manufacturing industries and the industries dealing in properties use this approach more often as most of their assets are tangible assets so the valuation of the business according to the valuation of the tangible assets becomes an easy task.
Firstly, the value of the tangible assets is recorded in the books of accounts and then their NetBook value is calculated and then the valuation of the business is done.
Business Valuation Calculators are quite useful for business owners as it helps them to know the exact worth of their business and then take decisions accordingly in the future.
