How to Value Your Business in Nigeria - 10 Critical Stages of Valuation

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Are you thinking of selling your business one day? Perhaps you’ve already received an offer that doesn’t feel quite right? Or maybe you just want to know how much your business is worth in order to prepare for the future. Whatever your reasons, there are many steps you must go through to value your business accurately. How do you know if the valuation process is thorough enough or perhaps even too brief? How do you make sure that the valuer understands all the intricacies of your company and its unique value proposition? There are many considerations when it comes to valuing a business and this article will help you understand them better.

Step 1: Determine the type of valuation you need

Before you start, you should make sure the valuer you choose is the right person for the job. There are two types of valuations - Fair market value (FMV) and Investment value (IV). The FMV is the price that your business would trade for in an open and unrestricted market, with both buyers and sellers having full information about the business. The IV is the price that an investor would be willing to pay for a percentage of your business if they believe it has strong growth potential. Depending on your goals and the type of valuation you need, you may need a hybrid approach. For example, you may want to get an FMV valuation from one appraiser and an IV from another to make sure you receive the most accurate possible valuation.

Step 2: Define your business’ core assets

The first step to any valuation is to determine what you consider to be the core assets of your business. These are the things that are absolutely essential to its day-to-day operations and its growth. They’re the things that give your business its competitive advantage. In order to determine an accurate valuation, you’ll need to fully understand these core assets and what they’re worth. Here are some examples of core assets that you may want to consider: - Assets: Physical or financial assets that are necessary for the day-to-day operations of your business. - Intellectual property (IP): IP covers both brands and technology and is often what differentiates one business from another. - Human capital: The skills and expertise of the people who work for you. - Reputation: Your business’ reputation and brand recognition. - Locations: Any real estate that your business owns.

Step 3: Determining the value of your business’ assets

In order to assess the value of your core assets, you’ll need to make an inventory of everything that your business owns. This will help you determine which assets are necessary and which ones are a little less so. When you’ve made this list, you should assign a value to each asset based on its condition, age, and replacement costs. Assets that you’ll want to consider include: - Physical assets: Land, buildings, and other tangible property. - Intellectual property: Brands, patents, and other IP. - Human capital: The education and experience of your employees. - Reputation: Your brand’s reputation and the loyalty it has generated. - Liquid assets: Cash, investments, and other sources of ready money.

Step 4: Estimate future earnings and growth potential

When you’re estimating future earnings and growth potential, you want to be as specific as possible. You might want to consider factors such as changes in technology and the marketplace, changes in employee skills and experience, and internal or external factors that may affect the growth and success of your business. Some examples of how you might do this include: - Technological change: How will technological changes affect your business? - Competitive landscape: What impact will changes in the competitive landscape have on your business? - Growth potential: What growth opportunities does your business have? - Internal factors: What internal factors could affect your business’ success? - External factors: What external factors could affect your business’ success?

Step 5: Calculate risk-adjusted equivalent cash-out value

In order to calculate the risk-adjusted equivalent cash-out value, you’ll need to assess what you would receive if you were to sell your business. You can do this by considering a number of different factors. You may want to consider: - Liquidation values: How much your assets would be worth if they were sold right now. - Internal rates of return: The internal rate of return on your assets and the rate of return on new investments. - External rates of return: The rate of return that you would receive on similar investments outside your business. - Equity value: The total value of your shares and the cost of acquiring the business.

Step 6: Estimate the value of key business assets

If there are any key assets in your business that aren’t included in your original list of core assets, you’ll want to consider them now. This may include things like copyrights, trademarks, and other intellectual property, company training materials, and key employees and contractors. You can also consider any real estate or equipment that your business owns but isn’t essential for day-to-day operations.

Step 7: Summing up – Is your business worth selling?

When you’ve gone through all these steps, you’ll hopefully have a much better idea of the value of your business. This will help you to decide if your business is worth selling. You’ll want to remember that this is just an estimate and that there are many factors that could affect this number. It’s also possible that an offer that you receive might be lower than this number. If that happens, don’t be disappointed. It may just be that the buyer doesn’t have all the facts they need to come up with a higher offer. However, if you have a thorough valuation, you’ll be able to tell if they’ve made a fair offer or not.