All MSMEs have a value. What's yours?
Value is calculated. Price is negotiated.
In general, no fixed rules or formulas apply to value how much your business is worth. Its value will always be what you are willing to sell for and what the potential buyer is willing to pay. Nevertheless, there are a few frequently used valuation methods that can help you to start the negotiation process.
The value of a business is the fair value of its tangible and intangible elements taking into consideration its future potential to generate cashflows. The value of a business is not its price. The price is what a buyer is willing to pay, and the more relevant and accurate the valuation, the better the price, potentially, you can negotiate.
It is well established that there is a high failure rate among MSMEs. These failures are the result of either the lack of management skills or lack of proper capitalization, or both. Put another way, MSMEs fail because of their inability to grow through the generation of adequate resources (increase input and generate income) internally or organically. One solution to this challenge is to have others buy into or invest in the business, with the aim of contributing to the management capabilities and capital resources.
This then brings us back to the whole question of the importance of establishing the proper value for your business. In the Caribbean, investment potential might be the most important reason for valuing your business. Accordingly, if more MSMEs establish appropriate valuations for their business, they have a better chance of securing the desired investments for their log-term survival.
Against the background of the COVID-19 Pandemic, it is also essential for MSMEs to pool their resources in some manner of business combination, in order to meet the challenges of the changing business environment in which we now operate. The first step in this process is the valuing of your business.