How to value a business/websites goodwill?

[Nano2nd]

I'm in the process of incorporating my sole trader business and my accountant is suggesting we sell the assets and goodwill to the LTD as this will be tax deductable by creating a Directors loan account, which is fine assets are easy, the goodwill isn't so simple...

the issue i've got it how to i value it? obviously i've got the accounts from my sole trader business, but the accountant is saying we need to look at what other similar websites have sold for/are selling for... anyone know where i could look for this info? a quick google search didn't yeild much unfortunately

[Eric Mc]

That's what your accountant should be doing.

HMRC are very wary of Goodwill valuations in such circumstances. so be aware of the potential for a tax investigation.

[Nano2nd]

Hi Eric

thanks for the reply, i've just re-read my post and it doesn't come across quite right. my accountant is doing this for me and he did mention about HMRC being very wary of exagerated goodwill values, hence he was asking me to also do some research if poss into the websites "value" obviously i might have industry knowledge... however my field is quite niche market, i've never seen a similar forum forsale let alone know what one sold for.

I had a look on the web and there hundreds of sites advertising hundreds of more site, most of them are just speculators hoping to get rich, so not much of a comparison really hence i was really asking if anyoe had an idea were to look for this sort of thing?

[sastanack]

I've just covered some of this in Accounts Prep 2 (AAT level 3)

Let me know what you find out! We were taught how to change it if there are any changes in partnerships etc but it's all different in practice

[walm]

I have never done this for VERY small businesses but I value big businesses for a living.

The two obvious approaches are:
1. DCF: Forecast out your business to maturity and then put a multiple on the final year's cashflow - discount to today.
2. Find comps: i.e. similar types of business with a similar growth profile and profitability - what have they sold for recently.
3. Current market values: i.e. similar types of business - but listed on the stock exchange, what are they trading on.

1 is a nightmare and will give you an enormous variance in value depending on small changes to the inputs.
2 is obviously what your accountant is suggesting.
3 is easy if such peers exist.

I imagine that the metrics you choose are quite important.
Multiples of:
Sales
Net income
Net income growth
Pageviews
Subscribers
etc...

If you can be more specific about what it is that your website does I could have a go at finding some relevant peers...

[anonymous-user]

You could start with what you have spent on it so far.

Then add a bit.