Factors That Can Influence Enterprise Value Determination

Enterprise Value or the selling price of a business is determined by various business calculation methods. There are four main business calculation methods namely, sales volume, cost of goods sold, cost of revenue and the market price of the product or service. The first one is called the gross selling price and the second one is known as the net selling price. The third one is commonly known as the effect of discounts. These four business calculation methods help the entrepreneur to determine the value of the enterprise.

Sales volume is one of the most important business calculation methods that are applied in enterprise value determination. Many entrepreneurs assume that a higher level of sales is reflected in better business performance and therefore increase the enterprise value. However, this is not always the case. There are several factors such as market competition, timing, number of sales and number of transactions that affect the level of sales in any business. Sometimes, a high level of sales may even lead to a lower level of profits. Therefore, these are the most important business calculation methods to be used in determining enterprise value.

Cost of good sold is another important business calculation method that should be used in the process of enterprise valuation. The selling price of the product or service is based on the cost of production. The factors that affect the cost of good sold include marketing expenses, research and development expenses, factory overhead, transport and transportation expenses and the price of raw material used in manufacturing. Sometimes, these items are not included in the selling price is the sum of these items. These are the most ignored factors in the cost of good sold.

The third factor that greatly affects the selling price of an enterprise is timing. Timing refers to the ability of a company to acquire and use a certain amount of the raw materials or the market price. There are many factors that affect the timing of an enterprise’s sales. For example, if an item is priced too cheap, then it does not attract customers and vice versa. The most common reason why businesses sell below their enterprise value is because they have priced their products or services too low. They assume that the consumers will find them cheaper if they price their products or services lower than their true market price.

The fourth factor that greatly affects the selling price of an item or service is marketability. Marketability refers to whether or not a good can be found by consumers in a reasonable quantity at a reasonable price. It is very hard to sell something that consumers do not have any interest in. Thus, the seller should make sure that there is a demand for the good sold.

The fifth factor that greatly affects the selling price of an enterprise is location. The location of the business is usually taken into consideration by the business broker when calculating the enterprise value. The location of the business in relation to the surrounding neighborhood and state can significantly affect the business’s marketability. However, there are times when the location of the business is disregarded. In this case, the broker will make a random decision as to the selling price of the business. Regardless of whether the broker has made a good choice or made a random decision, the location of the business still plays a part in determining the business’s marketability.

The sixth factor that greatly influences the enterprise value of a business is the long-term viability of the business. This factor considers the factors that make a business more or less sustainable over time. When considering these factors, the broker considers whether the business is viable as a long-term investment or not.

The seventh and last factor that greatly impacts the enterprise value of a business is the potential return on investment. This factor looks into whether or not the business can generate a good profit over a long period of time. These factors include demand, profit margin, quality of service, location, and profitability. It is very important that a seller thoroughly examines these factors before choosing to sell the business. However, sellers should note that this process may differ from one buyer to another. Because different buyers have different requirements, sellers should also look into this factor thoroughly before deciding to sell their business.