You can’t take for granted that the value of your company is what you think it is, or worse yet, what someone else thinks it is. There are six key factors in determining the value of a company which we will explore in this blog post. 


Factor #1 – Intangible Assets

From patents to trademarks and copyrights, intellectual property can have a big impact on the value of a company. Determining the value of these assets can be tricky. It’s important to be aware of them when trying to value a business.


Factor #2 – Product Diversity

A business with only one product or service is at much greater risk than a business that has multiple products or services. This is because a single product or service can be a major risk to the company if it fails. Products and services can help to offset each other and reduce overall risk. 


Factor #3 – ESOP Ownership

Valuing a business is never an easy task. It can be especially difficult when the company is owned by its employees. This situation can restrict marketability and in turn impact value. 


Factor #4 – Critical Supply Sources

If a business is particularly vulnerable to supply disruptions then expect the evaluator to take notice. The reason is that a supply disruption could mean that a business’ competitive edge is subject to change. When supply is at risk then there could be a disruption of delivery and evaluators will notice this factor. 


Factor #5 – Customer Concentration

This problem can arise when a business relies too heavily on just one or two customers for a large percentage of its revenue. When this happens, the health and stability of those customers becomes a major concern for the business owner. If they were to lose one or both of those customers, the company’s revenue and profits would take a major hit. 


Factor #6 – Company or Industry Life Cycle

Various challenges that can arise depending on the stage of the company’s life cycle. If a business is facing obsolescence, thus be worth less than other businesses. 


By working with a business broker, you can get a grasp of the potential problems you may face. This way, you can be prepared for any challenges that may arise and avoid surprises down the road.

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