So in today’s video, which is the second part of the video before it, it’s about what is your business actually worth. And today I wanted to talk to you about some of the other factors that go into determining the value of your business. So last video, we talked about what the financials need to look like and what the actual value of the business is worth.
So now let’s talk about the kind of things a buyer is actually looking for when they’re deciding whether or not your business is worth paying the money for. So a couple of the keys things that a buyer is always trying to establish is, how much of the success of the business is actually linked to the processes in the business and the team in the business which they’re going to inherit, and how much of that is actually linked to the owner.
So what I mean by that is, if I was thinking of buying a business and I paid all this money out for it, how would I feel if half the customers left overnight because they had a personal relationship with the owner of that business. So this is actually a very real concern, and this is something that, if you are trying to sell a business or building it up, you need to make sure that the actual customers you bring into the business are based on your product and offering rather than your days out at the golf course and wining and dining them. So it’s about actually building a business that sells on its own brand rather than yours.
And a couple of the other things people look at is, they look at the quality of the accounts, how up-to-date the tax work is. They want to understand if you’ve been a responsible business owner, so that’s a good way to try and understand that. They will obviously credit check your business. And so, yeah. If you are interested in how credit checks of businesses work, then I’ll be doing another video to actually go through that so keep watching.
But one of the also really the important things is, they’re going to look at how your customers spread out and how your turnover is broken down over those customers. If you’ve got one customer paying you 10 million pounds a year and then five others paying you 50p a year, then that’s going to be incredibly risky for a buyer. Whereas, if you’ve got 20 customers paying you 10 grand each a year, then that’s going to look a lot more steady and stable in terms of a buyer coming in, because they know that if they lose one or two of those customers, they’ll still have the bulk of the business still left going. And also, they’re going to be looking at really the strength of the brand.
So there’s quite a few other factors that do go into determining what that business is actually worth. And a lot of the time, especially as an accountant, I have customers coming to me saying, we’re thinking of buying this other business and we want to know whether it’s worth it. And then I sit down with them, and I’ll go through the books and figure out what the underlying performance is so they can get a good idea.
So building your business into something it can sell is actually really important, because even if you’re not thinking about selling your business, what it means is by the time it’s something you can sell, it’s also something that runs itself. And if your business is something that runs itself, it’s going to give you the lifestyle you want, because you’ll be out with your family and doing the things in life you really want while the business is running itself.
So, there’s no real difference between a business that sells and a lifestyle business, because the two have the same features. And the kind of business you want to be working in or working around, is also the kind of business that people want to be buying. So if you want to find out a bit more about how you can build your freedom business, the business that’ll really support your goals in life and give you a healthy income, then book yourself in for free game plan session. I’ve put a link in the video below. And then we’ll go through the next steps involved in doing that.