Need to value a business - recommend an accountant?

Need to value a business - recommend an accountant?

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type-r

Original Poster:

13,921 posts

212 months

Friday 27th November 2015
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I am looking to purchase a business and need a valuation based on a discounted cashflow or similar method. Need an accountant to not only take a look at the accounts over the last few years but also forecast future revenue and profit - especially given that this business has a relatively young workforce and profit will be affected given government plans for the national minimum wage is set to rise from £6.50 to £7.20 an hour from April, with the figure rising to £9 by 2020 for over-25s.

Can anyone recommend somebody, perhaps someone who specialises particularly in the purchasing of businesses? Turnover is less than 500k if that makes a difference.

Ozzie Osmond

21,189 posts

245 months

Friday 27th November 2015
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When you are buying a business the most crucial element is often the future profit forecast - if you don't know enough about that type of business to get a grip of current and future profitability yourself I'd steer well clear. I doubt an accountant will be any help unless he/she is already an expert in that type of business, although they might be able to spot any massaging of figures ready for sale.

Once you do have an estimate of future profit it's a case of multiplying by a suitable number and negotiating from there. Check out this link for some guidance, http://www.bytestart.co.uk/value-a-business.html

rog007

5,748 posts

223 months

Friday 27th November 2015
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Ozzie Osmond said:
... if you don't know enough about that type of business to get a grip of current and future profitability yourself I'd steer well clear.
'Nuff Said!

Never rely on others for this sort of insight no matter how technical it may seem; unless of course they're partners and will share the risk if they get it wrong!

walm

10,609 posts

201 months

Monday 30th November 2015
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My job is to value businesses but usually big ones.
However, I am often asked to value little stuff by friends and whenever I have taken an (admittedly half-arsed) look at the business the best DCF or Gordon Growth or CFROI or whatever method is almost ALWAYS surpassed by belligerent sellers who think they know the value of their own business.

Usually this involves the owner working full time for the business but not charging himself out at any rate and just taking all the profit as his effective "salary".
Which essentially means the business is worthless.

However, I digress, what inevitably seems to happen is that there is a rough rule-of-thumb for certain types of business, say as an example "Free-of-tie Pubs are always worth 2-3x revenue" which sets the price.

DCFs just don't work because the CORRECT cost of capital you should be using is ENORMOUS given that the chance of a small business failing is absolutely HUGE.

And the problem with correcting for minimum-wage rises is that you need to take into account the fact that everyone in the industry will be facing it and hence will raise prices in order to offset and maintain margins.
What the elasticity effect might be of such a tactic is almost impossible to determine without an incredibly detailed analysis, which will probably still be wrong.

So if I were you, just find the relevant multiples at which similar businesses change hands and then use the minimum wage hike as a negotiating tool to get the lowest multiple possible.

I am not sure how crazy busy I will be this week but if you PM me a spreadsheet with all the historical data I might be able to put together a DCF for you to play with - if it's an industry I know. But remember it will be garbage-in, garbage-out. I can usually make a DCF justify any price you like by tweaking the cost of capital and growth assumptions!!

Adam B

27,142 posts

253 months

Sunday 6th December 2015
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Another accountant here but not special is like walm

Don't get the focus on DCF to be honest, anyone with some basic maths skills and Google can do one if you have financial history and excel.

May provide a starting point for negotiation but far more important that buyer understands industry they are buying into and factors like key employee or client dependency, market growth and competition, or as OP rightly identifies the cost pressures to come