Business Valuation Factors: Products, IP, Margins

There are a few processes that can be vital to business owners both during prospective sales and in many other scenarios as well, and a great example here is a business valuation. While business valuations are often carried out when you're looking into the possibility of selling your business, many savvy business owners also maintain regular business valuations that impact day-to-day operations and future success.

At Utah Business Consultants, we're here to provide high-quality company valuation services for businesses around Salt Lake City and nearby parts of Utah, including full business appraisal and related solutions - whether you're actively looking to sell, planning for the future or simply looking to run your business more effectively on a day-to-day basis. In this two-part blog series, we'll look at some of the key factors that tend to influence accurate business valuations, and what to keep in mind within each area.

Business Valuation Factors

Products and Services

Naturally, one of the chief overarching areas that will play a big role in determining your business valuation is the suite of products and services you offer to customers. You may have heard the term "revenue multiples" being used in certain circles, for instance - this refers to how many times above your annual revenue businesses are often sold for.

For example, if your company is earning $1 million per year and similar companies in your area are selling for three times their annual revenue, you might expect a valuation of $3 million. However, this is a very simplistic model that does not take into account various other factors like industry trends and competition.

Value of Intellectual Property

Also vital to consider with regard to product and service value is your company's intellectual property (IP) portfolio. A business valuation will look at not just revenue, but also the strength of certain products or services in retaining customers and driving future success.

For example, a tech startup with groundbreaking patents on new technology will likely be valued far higher than one that sells similar products without any such protection. Similarly, a strong sales funnel and customer base will be considered valuable, even if they are not generating significant revenue at the moment.

In addition to IP value, it's also important to consider any intangible assets your business may possess, such as brand equity or customer loyalty. These factors can significantly impact the overall valuation and potential sale price of your business.

Costs and Profit Margins

There are a number of different cost factors that can impact business valuation, from basic expenses like rent and utilities to larger costs such as inventory or equipment. Profit margins will also be closely examined, as this helps determine how much profit the business is generating and what potential buyers can expect in terms of return on investment.

It's important to have a clear understanding of your company's costs and profit margins when going through a business valuation process, as this information will heavily influence the final number. Regularly reviewing and optimizing these areas can not only boost your current valuation but also set you up for long-term success.

In part two of our series, we'll look at a few more important factors to keep in mind during business valuation, including company assets and overall market trends. Stay tuned! We at Utah Business Consultants understand that every business is unique and requires customized solutions when it comes to valuation. That's why we take the time to thoroughly evaluate all areas of your business before providing an accurate valuation. Contact us today to learn more about these or any of our business broker services!

© Copyright 2023, Utah business consultants