Intuitively the value of a business should reflect its attractiveness and the generation of profits or dividends for its owners.

The fundamental basis of valuation is that:

• The value of an asset today is the present value of the future cash flows that the asset is expected to provide its owners.

So the value of a business (the asset) is the present value of future cash flows (or "adjusted" net profits).

The typical methods used to assess the value of a business include:

• Earnings Multiple.

• Discounted Cash Flow Analysis.

• Asset or Book Value.

• Return on Invested Capital.

Ideally the valuation range should be arrived at using a number of these valuation methods, and the range should be as narrow as the assessment process allows.

The valuation should be performed with a typical buyer or range of buyers in mind. After all, it is the buyer that ultimately decides the value of your business. The value is never known until the buyer gives you a cheque and the funds have cleared in your account. Until this point the value can only ever be estimated within a certain range.

There are three major assessment criteria for assessing the business value. These are:

1. Is the business transferable?

2. What is the relevant cash flow that the buyer will get a benefit from?

3. How attractive is the business to other buyers?

Is the Business Transferable?

No one wants to buy a business that they can't operate. If it relies on the owner to bring in the customers, service them and manage the business, there is a big question as to whether it can be transferred to someone else.

Many professional services businesses exist because of the relationship with the owners. If these relationships cannot be transferred, there is little or no value in the business.

What is the Cash Flow?

Cash flow refers to the operating profit generated over and above any wages or salaries that should be paid to the owner. If the owner is working in the business, then they should receive a wage for their efforts. But the business should also generate a cash flow in addition to this wage.

The cash flow can be adjusted to remove the effects of one-off expenses or revenue or non-operating items.

The higher the cash flow, the higher the business valuation.

What influences the attractiveness of the business?

The attractiveness of a business is a combination of the profitability and the key factors that influence its financial performance. These key factors contribute towards the Earnings Multiple. If one business is more attractive than another similar business it will have a higher Earnings Multiple and hence a higher valuation.

Selection of the Earnings Multiple will depend on factors such as:

• Type of business, industry and location.

• Size and profitability.

• Attractiveness of business.

• Demand for this type of business.

• Perceived risk of the business.

• Efficiency of operations of the business.

Understanding the value of your business will allow you to develop plans to increase the value. An experienced professional can identify the key factors in your business that will increase its value and what actions you should take. Knowing the value of your business is the starting point to change it, and is not just for those buying or selling.

We have helped hundreds of business owners understand the value of their business and discover the actions that increase the value of the business.

Our Your Value NOW process gives a fast valuation of your business and highlights the 17 key saleready factors that you need to improve to increase the value of your business.

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Every successful business has its own recipe for its success. Some owners credit it to their employees or products. Other believe it's the services they offer or their business plans that make them stand out. Each and every business owner has a few factors that he or she believes are the key to their success. What ever the business may be, there are certain factors that will keep customers coming back for more. Here are the top three factors that successful businesses tend to have.

High Quality: When you are starting a business, whether it is an online venture or one that has a physical address, the most important aspect of the business will be the quality of your services or products. Customers are more than willing to pay a higher price if they find that the quality of the item or service is worth it. Believe it or not, clients are annoyed not by a high price of an item, but about the service or product that does not deliver, even if it is the cheapest option around. Clients expect something great for their money even if it's just a dollar.

Excellent Customer Service: Having a reliable customer service adds value to the overall customer experience and makes you stand out from your competitors. Making it easy for the customer to refund, return, or exchange can do wonders for your business. Offering a guarantee will also enhance the customer service experience. But you'd be surprised to know that many business miss this important aspect for fear of losing money if they make a great refund policy. Being open and having a great refund policy to back your wonderful services or products shows the clients that you are confident in what you are putting out to the world. Being confident in your services or products provides the client a higher inclination to buy from you.

Up To Date: Whether you work in the fashion industry or IT, there are trends where things will come and go. Keeping up to date on the latest in your industry will keep your business on it toes. Staying out-dated and behind the curve will leave you with less and less clients as time goes by. Clients pay for innovation, expert advice, latest material, and the latest products. You must prove yourself as the primary expert in your field and to do that you must be up to date on the latest in your industry. Whether it means continuous training in your field or seeking out the latest technology, you must be aware of all that is new in your area of expertize.

These are three factors that anyone can laid down as part of their foundation in building a successful business. By maintaining these factors, you would be well on your way to making your business a success.

Alia Aledawi is a Business & Beauty consultant based in Abu Dhabi. She is the founder of an online blog which helps others improve their life and business, one lesson at a time. Connect with Alia at http://www.aliaaledawi.com/

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