There are many ways of putting a value on your company. One method is to analyze future income and profits. This process is known as the investment approach to valuation. To produce accurate figures the vendor needs to make calculations based on the amount of income that is likely to be generated in the future. This income then has to take inflation into account.
There are a few things to consider when evaluating your company's future earnings:
1. Past profit
2. Future orders
3. How is the sector performing
4. Will any new owner have to carry out any essential improvements?
5. Economic growth of the area / country
Other methods that can be used when trying to find a value for a company are; asset based, market approach and income approach. All these methods are tried and trusted, however all of them will produce different figures. In fact there are that many the whole processes that produce different amounts it has made the whole process more complicated.
I like to use simple methods one I use is that a small company should sell for 1.5 to 2.5 of there annual earnings; this method will give you a benchmark to start with.
I would always aim 10% higher than what I would like to pay as that leaves natural space for negotiations.
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