Valuing A Company?

Discussion in 'Money, Accounts & Finance' started by ladyvgw, Mar 2, 2016.

  1. ladyvgw

    ladyvgw

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    Does anyone know if there is a standard way of valuing a business? There are lots of 'Free valuation' calculators on the internet but not really sure I would trust any of these! Any thoughts?

    Thanks
  2. shaununo

    shaununo

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  3. liamhawes

    liamhawes

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    What type of business are we trying to value? Is it your actual wholesale company?
  4. ladyvgw

    ladyvgw

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    Yes.

    I have a good amount of stock (all paid for), a healthy bank balance and no debts. Its the 'goodwill' bit I am struggling to calculate.
  5. ladyvgw

    ladyvgw

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    I should point out by the way that I am not thinking of selling up! This is just for my own curiosity!
  6. Gary

    Gary

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    Goodwill can be very subjective so is the most difficult to calculate, as the simple multiplication/calculation method depends on the amount of work needed by the owner as obviously a mostly residual income will have a larger goodwill multiple than one which is very hands on/time consuming.

    Therefore one way to increase the value of a business would be to have staff running the day to day remedial tasks, which even though this may initially reduce profits it would give a higher multiple value for goodwill, plus of course with the extra staff profitability should increase as this would then leave more time for growing the business.

    Say for example you completely run the business yourself and have a turnover of £1 million but a profit of £100,000 but it takes the owner 40+ hours a week to run/manage then subjectively (depending on the buyer) its goodwill value will most likely be between 1 and 3 times that profit value (although obviously only a fool or someone desparate to sell would contemplate selling for 1, but it could maybe even be worth up to 5x for the right buyer), depending on if they're looking to run it themselves and don't mind putting in the hours or work or employing staff, etc. Whereas if a you employ staff so less work would be needed and more growth was available this could be increased to approximately 3 to 5 times multiple profit value, again maybe even more to the right buyer, and probably make it more saleable as even serial entrepreneurs would still have the time to run it.

    Plus assets of course for the total valuation.

    There are obviously other variables which can affect it such as overheads, business type, administration, perceived future growth/decline, complexity, etc. So I would only use this as a guide, though even professional valuations can be subjective, as you know ultimately the "worth" of anything is what a buyer is willing to pay and some may pay substantially more (or less) than others.

    So in short there really is no "standard" valuation, but maybe taking an average from the range would be a good starting point.
    Icclebits, Import Expert and ladyvgw like this.
  7. ladyvgw

    ladyvgw

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  8. dsben

    dsben

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    Have you asked your accountant?

    I have seen businesses sold for anywhere between 1x - 5x profit, plus stock.
  9. CL102

    CL102

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    Accountants are generally not very good at valuing businesses (valuation is not part of what they do for a living). But your accountant should be able to refer you to a qualified valuer. Valuers would charge. They would crunch lots of numbers, including what comparable busineses have sold for, and they'll give you a number or a number range.

    And that number is completely worthless!

    Because if you're ever looking to sell a business the buyer will put his own value to the business. He won't give one hoot for the figure you provide.

    With respect businesses being worth a multiple of earnings, that's a myth: *****************************************************************
  10. consultant

    consultant

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    This is subjective.

    Bottom line is it is worth what someone will pay for it.

    The basics to bare in mind are:
    • the value of your stock and its margin potential
    • the cost of operations
    • what your profit and sales are
    • liabilities
    Goodwill is great, but, unless it is a big or established brand/company, it is easy to emotionally over value it!
  11. CL102

    CL102

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    Value of stock, profit levels etc., are the commonly known contributors to value. Other commonly known factors are lack of reliance on key persons, a recurring revenue model etc etc.

    However, there are many more.

    For example, the willingness of the vendor to finance part of the sale can add 25% or more to the price.

    The extent to which risk is shared between buyer and vendor post sale (via buy-outs or other structural elements) can impact on price.

    The quality of the broker / advisor taking the business to market can have a huge impact. The way the business is marketed, the number and quality of buyers that are attracted, and the ways those buyers are managed to (discreetly) compete against each other on price ... can more than double the price the owners achieve when taking a business to market.

    >>Bottom line is it is worth what someone will pay for it.
    Or it's worth what you can get someone to pay for it ;)
  12. Mark Partridge

    Mark Partridge

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    From an accounting perspective you cannot recognise internally generated goodwill on your balance sheet as its too hard to value and is subjective.
    Goodwill can only be recognised on your balance sheet if it is externally generated I.e you purchase another company. After the purchase, goodwill is usually valued as the purchase price less the net assets in the company. This is because the goodwill can be resonably valued.

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