business valuation..


P

Peter Saxton

hi guy's

we were approached last week regarding the possibility of buying out another
business simular to ours


details as follows

single owner looking to retire (20yrs in business)
has shed ALL staff and just uses subbies (I don't know who answers the phone
etc)
turnover 250k
profit 95k
several large contracts -value as yet uncertain

how does one go about figuring the valuation??

more details as they emerge (if req'd)

cheers

richard
Usually it's based on a combination of profits and/or assets but with
the large contracts I would have thought you would want to look at the
cashflows closely.

You really do need to get an accountant involved because you need to
look at the future benefit to your business if you buy this business.
Then you need to look at what the present owner will lose by not
having the business as well as the reasons for sale.
 
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R

r.bartlett

hi guy's

we were approached last week regarding the possibility of buying out another
business simular to ours


details as follows

single owner looking to retire (20yrs in business)
has shed ALL staff and just uses subbies (I don't know who answers the phone
etc)
turnover 250k
profit 95k
several large contracts -value as yet uncertain

how does one go about figuring the valuation??

more details as they emerge (if req'd)

cheers

richard

--
 
D

Dave

hi guy's

we were approached last week regarding the possibility of buying out another
business simular to ours


details as follows

single owner looking to retire (20yrs in business)
has shed ALL staff and just uses subbies (I don't know who answers the phone
etc)
turnover 250k
profit 95k
several large contracts -value as yet uncertain

how does one go about figuring the valuation??

more details as they emerge (if req'd)

cheers

richard
if all the staff have been chucked out of such a profitable enterprise
you've gotta consider whether they are now in competition with their ex-
employer.
 
R

r.bartlett

yes indeed these are issues we have to explore..

the guy wants something like 150k -which made me chuckle somewhat..;-)

cheers

richard
 
P

Peter Saxton

yes indeed these are issues we have to explore..

the guy wants something like 150k -which made me chuckle somewhat..;-)

cheers

richard
Why did it make you chuckle? 95k pounds a year for 150k pounds seems
good value on the face of it.
 
E

Edward Cowling

r.bartlett said:
single owner looking to retire (20yrs in business)
has shed ALL staff and just uses subbies (I don't know who answers the phone
etc)
turnover 250k
profit 95k
several large contracts -value as yet uncertain

how does one go about figuring the valuation??
About 99% of the questions here really need answering by
"ask an accountant" and this one doubly so.

With that amount of goodwill and profit contribution we're
looking at a significant value. Are you really going to listen
to a few guys on a News Group to make that kind of decision ??

Plus are you taking on the balance sheet ? Or just the goodwill and
order book ? Do they have an recognised brands ? regd trademarks ?

There are a zillion questions that YOU need a professional person
to look at.

Good luck, by the way :)
 
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E

Edward Cowling

r.bartlett said:
yes indeed these are issues we have to explore..

the guy wants something like 150k -which made me chuckle somewhat..;-)
Why ? That could be very cheap, you haven't given us
enough info to know.

Supposing the 95k profit is after another 50k of costs you
can ditch ? Or they have a 10 year contract with a blue
chip company ?

I have seen companies sell for 10 times profit contribution and
the buyers thought they got a bargain.
 
R

r.bartlett

well whilst you are just a few guys on the internet -usually the ones who
frequent their vocational NG tend to be those who are quite into what they
do 'busmans holiday' 'n all

therefore I appreciate their/your advice whatever..as I have done so on
other situations previous

however in answer to your question

no I wouldn't expect to base my decision on this NG but whilst I will pay
for advice (which I am already BTW) a broad sweep across several 'experts'
here is more than welcome..

the company is a service based one with no trademarks widgets assets
tangables or staff except
a telephone number
maintenance contracts
'goodwill'

and a boss who's 63 and winding down .....

cheers


richard
 
F

Fred

Edward Cowling said:
Why ? That could be very cheap, you haven't given us
enough info to know.

Supposing the 95k profit is after another 50k of costs you
can ditch ? Or they have a 10 year contract with a blue
chip company ?

I have seen companies sell for 10 times profit contribution and
the buyers thought they got a bargain.
My humble awareness of this subject suggests that normally it's 5 x profit +
tangible assets.

If the company is expanding and the growth is seen as sustainable then the
value may well be 10 x profits.

IANAA
 
K

Keith

r.bartlett said:
well whilst you are just a few guys on the internet -usually the ones who
frequent their vocational NG tend to be those who are quite into what they
do 'busmans holiday' 'n all

therefore I appreciate their/your advice whatever..as I have done so on
other situations previous

however in answer to your question

no I wouldn't expect to base my decision on this NG but whilst I will pay
for advice (which I am already BTW) a broad sweep across several 'experts'
here is more than welcome..

the company is a service based one with no trademarks widgets assets
tangables or staff except
a telephone number
maintenance contracts
'goodwill'

and a boss who's 63 and winding down .....
A useful gambit is to link the purchase to an earn-out, based on nett
profits achieved during the next two years.

Being service based I would query the multiples of previous profits
route. I presume he has already taken these out of the business,
promised future earnings aren't worth the paper they're written on after
contractual periods and the goodwill is all in the domain of the
retirer.

You need a strategy which demands his loyalty/commitment whilst you
inveigle yourself into his client base.
 
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E

Edward Cowling

r.bartlett said:
well whilst you are just a few guys on the internet -usually the ones who
frequent their vocational NG tend to be those who are quite into what they
do 'busmans holiday' 'n all
In case my comment seemed harsh, I do include myself in it. You have
no idea of our backgrounds and this is going to be an expensive
acquisition.
therefore I appreciate their/your advice whatever..as I have done so on
other situations previous
Ok, but you need to get your accountant involved to look at the
figures. If you're looking for outside finance to fund it, I would
imagine the lender will want some auditing of the numbers.
no I wouldn't expect to base my decision on this NG but whilst I will pay
for advice (which I am already BTW) a broad sweep across several 'experts'
here is more than welcome..
Every MD I've ever dealt with has had this idea that accountancy is a
science, and there is one, and only one set of numbers for the year for
his/her business. Every accountant will tell you it's more of an art
form:)

If you ask 12 accountants about this, you'll get 20 answers. In the end
I'd advise listening to the guy you pay, and who has provided your
audited accounts for years. I'm sure if he feels out of his depth he'll
seek assistance.
the company is a service based one with no trademarks widgets assets
tangables or staff except
a telephone number
maintenance contracts
'goodwill'
Maintenance contracts are good news. If the people are paying them, and
you have the guys to go out to the clients, they can be a license to print
money. I'd ask for a projection for the next years income from them, and
then you should be able to work out profitability. You will need to re-sign
the contracts at some stage, so if you can get the outgoing guy to trudge
round
the customers with you, then it help.
Goodwill is always the most difficult item to quantify, and be aware that
your
auditors will want it written off quickly, so it will effect your group
profits for
a few years. Again it's not science, goodwill is usually a balancing item
between
the book value of the assets and what you're willing to pay.

You need your guys to look at the figures, but the amount you mentioned
doesn't seem excessive.
and a boss who's 63 and winding down .....
I doubt he won't want to be locked into a consultancy deal, and to be
honest
you know your business, so you probably want him out of the picture
fairly quickly. I would try to get him to help you get the maintenance
contracts re-signed before he goes though. By re-sign I mean a fresh
period of say 2-3 years after expiry with your company, you could even
offer a discount for them to do so. This will assure you of a good starting
income stream.
 
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