Most business owners only think about getting a formal valuation done on their company when they are considering selling it and need to evaluate offers.
But the disciplined process of determining your company’s monetary value can give you insight when facing other types of questions – such as how best to grow your company, where you are weak or strong in industry terms, and how to track progress on your strategic goals.
Scott WomackEveryone understands the concept that if I have more sales and income, I’m probably worth more money. That’s not incorrect. But in determining the worth of a company, other factors also drive the number.
For example, let’s say you have two companies with $10 million each in sales. One company has 10 customers at $1 million apiece. The other has two customers at $5 million each. Which do you think is more valuable?
In addition to customer concentration risk, other factors influence value, such as age of equipment, management depth, systems in place, capacity and technology.