Valuation methods to use in selling business in Hong Kong
An entrepreneur knows when to let go of a business. Selling a business is part of a business cycle to salvage what’s left of a company. However, it is common that business people often undervalue what they have. Instead of gaining in selling their business, they often lose more than they should. It’s important to know the value of your business most especially if you plan to sell business.
Estimation of Assets
These are basically the controlled resources of a business. When it decreases, it also means that there are more losses than gains. Estimating its worth is the first step that you should do before selling your business.
Ask yourself the following questions:
- How much money does your business currently have?
- What are the liabilities that you business carry?
- How much is the overall cost of your business?
Upon answering these questions, you’ll come up with a rough estimate of the cost of your business. Business owners who sell their companies based on their assets tend to have a decreased or lower valuation than what they expected. Another way is the “Discounted Cash Flow” where you often get more.
Discounted Cash Flow
The buyer of your business shall decide if they want to use this method because they will be the one handling in the future. Discounted Cash Flow gives the buyer an estimation of what the business can earn or how lucrative it can get in the future.
They don’t care about the current value of your business rather they look at its potential. The more stable the cash steam is, the more likely the buyer will get it. It also helps them to estimate what they can get once they decide to sell it as well in the future.
Discounted Cash Flow answers two questions:
- How much money the business is going to make in the future?
- How reliable is the cash stream?
If the answers in these two questions are positive, then the company is more likely to grow in the future. This will help you gain your losses in the future, if there are any.
Market Value Estimate
The last method you can use is looking at the market value of a business. However, it’s the last as it’s also the least accurate method. It’s also known as the comparables methods.
Your potential buyer shall compare your business to a similar one coming from the same business type and same business size as yours. This is where inaccuracy happens because comparing a business to another is like comparing apples to oranges.
One’s market value is not comparable to the overall value of a business. It’s still best if you compare it according to its actual value and future value.
Do you plan to sell business in Hong Kong? Or you’re just simply undecided on which valuation method to use? Easy Buy Sell Business Hong Kong can help you with that! They have services such as valuation that can help you find buyers in Hong Kong. They are a Business Sales Platform where they can help you connect with other business owners or guide in your business journey.
Whatever it is you need in terms of business in Hong Kong, they have the answers for that!