Valuing Your Business for Sale

Valuing Your Business for Sale

Determining a fair market value for a business is not a precise science and can vary depending on the type of business and the reason for a request of a valuation appraisal. There are a wide range of factors to consider – from the book value of the assets, to a host of intangible elements. The value of the business will rely on an analysis of the company’s cash flow, its past and current earnings, and the sustainability of those earnings. In other words, its ability to generate consistent profits will ultimately determine its worth in the marketplace.

Using Martin Plom at LINK Business
Over the past few years, Martin has facilitated the sale of many businesses with sale prices in excess of $1 million ($9.85m, $6.6m, $4.75m, $4.6m, $2.75 ….).

Using LINKs comprehensive database and statistical evidence, together with his involvement with various industry statistical databases, and his own sales history an “industry” multiplier – the PE (Price to Earnings) Ratio will be determined. This multiplier fluctuates and is market sector driven.

However, whilst earnings history is key to most business valuations, the PE Ratio may not necessarily be the best indicator of value. Strong, but under-performing assets and revenue strength and mix, can be equally important. As can the optics of the business – by this I refer to the look and feel and processes and procedures in the business.

Most business valuation methodologies should recognise market evidence and industry specific practice.In summary there are 3 business valuation approaches:

In summary there are 3 business valuation approaches:

  • Earnings based
  • Asset based
  • Market based

All three are considered in our valuation appraisal & opinion approach. A fair market approach based on industry experience and comparable sales may well be the most accurate indicator of value.

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How will Martin Plom at LINK price your business

My approach to business valuations is to use market data as a backbone to give you real world context around your category of business.

For larger businesses which is my area of expertise an “industry” multiplier – the PE (Price to Earnings) Ratio will be determined and this will be multiplied by Normalised Net Profit before tax.

The total value of the business is usually given on a Going Concern basis, not a share sale.

The sustainability of earnings will be based on the historical and current earning capacity of the business, (i.e. willing, informed but cautious buyer’s expectations of the ability of the business to maintain profitability for a foreseeable period of time).

I will provide a complete report relative to all aspects of the business, taking in to account:

  • the financial documentation supplied
  • the business culture and infrastructure
  • the fair market value of the unencumbered assets e.g. plant, fixtures, fittings etc
  • the reliance on the business owner
  • its relevance to its market sector
  • assessment of risk factors and the market within which it trades.

For Further Information about this article and advice on what your business is worth contact Martin Plom 0210515507 or [email protected]

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