Valuing a business

[wjwren]

Friend is selling his business, says he wants £180k for it. I was thinking a completely different figure a lot lower. How do you value a business? The business is not unique, they collect rubbish from businesses. 3 staff in total.

[wjwren]

From companies house.

[48k]

How long has the business been trading? Revenue and number of customers over the last, say, 5 years can help paint the picture.

[NDA]

wjwren said:

Friend is selling his business, says he wants £180k for it. I was thinking a completely different figure a lot lower. How do you value a business? The business is not unique, they collect rubbish from businesses. 3 staff in total.

It is moderately straightforward to value a business.

First bit of information:

Annual revenue?
Annual profits?

As the post above asks - how long have they been trading? Is there growth over this period?

Why is he selling?

[Ean218]

With the information currently available it's worth £108....

[anonymous-user]

Ean218 said:

With the information currently available it's worth £108....

or less!

[FWIW]

Why would anyone buy it? A competitor for the customer base is the only potential buyer, I would have thought.

3 x EBITDA?

[anonymous-user]

There's so little you can tell from statutory accounts that it's nothing more than an exercise in conjecture.

What's the historical performance, profit figure, margin, length/strength of supply contracts, goodwill, scalability, competition, regulatory environment, barriers to entry, actual and potential risk mitigation, key persons?

It's worth what someone will pay for it is the answer.

[Labradorofperception]

You need to go through the last 3 to 5 years accounts.

Adjust each years EBITDA for non-recurring / exceptional etc.

Determine what the maintainable income and adjusted profit is then apply a suitable multiple. The multiple will reflect the strength of the business, demand for it, marketplace and competition and what assets it hold, principally real estate.

Make an end allowances for non-operational assets, such as land etc.

Make a brew for the inevitable "but it has a book value of x % more than you valued it for".

[classicaholic]

I was offered 5mill for my business a few years ago and that was way higher than the book values etc but the company making the offer wanted our IP and entry into another market.

[Labradorofperception]

classicaholic said:

I was offered 5mill for my business a few years ago and that was way higher than the book values etc but the company making the offer wanted our IP and entry into another market.

Good to hear - I'd get your assets revalued

Surprising how much of a premium a new market entrant will pay for brand /IP, market placing and such. The crux is to either increase the cap rate or make a suitable end allowance.