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What factors can affect a business’s sale value?

On Behalf of | Feb 6, 2024 | Business & Commercial Law

Selling a business can be a confusing task, especially if circumstances complicate specific steps of the process or overall. It often begins with determining the business value, which can vary based on different details. A seller can usually hire a professional to appraise the business, giving them an accurate sale value. Still, it can benefit the seller to understand what can contribute to the valuation before finalizing any decisions.

There are many methods to determine a company’s value, most of which involve the following factors:

  • The company’s market value calculated based on its share price
  • Revenue earned over a specific duration
  • Past and future profits computed against the actual cash flow of the company
  • Inflation, which can be a factor when calculating future earnings of the business
  • Data documented in the company’s records, showing equity of shareholders and other details
  • Value of other assets and liabilities of the business

A company’s value can also vary, depending on its nature and the circumstances surrounding its operations. Before hiring someone to appraise a business, it can be helpful to consider if their experience aligns with the company’s background.

Keeping the sale legally sound

Aside from getting an accurate valuation, the company’s sale can have various complications. Unique circumstances can lead to complex legalities that may impact the purchase’s outcome. Sometimes, the issue can be so severe that potential buyers could back out of the purchase and leave the seller hanging.

In these instances, seeking legal counsel can be beneficial, especially when managing the necessary paperwork. Proper guidance can also help secure the interests of all involved parties and address any issues that may arise.