How do you value a company?
27 July 2003, 09:59 AM
#1
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I'm interested in buying an existing company? It's not for sale but I'm pretty sure the right offer would secure it as it's owner is talking about just closing up.
Also, does anyone know what the possibility of borrowing a large amount of cash to purchase the business would be considering I have next to no cash investment myself?
Basically I know the business inside out and I know the company would be very lucrative if the owner didn't take out £100k a year to support his lifestyle and actually employed a salesman.
Where the hell do I start?
Also, does anyone know what the possibility of borrowing a large amount of cash to purchase the business would be considering I have next to no cash investment myself?
Basically I know the business inside out and I know the company would be very lucrative if the owner didn't take out £100k a year to support his lifestyle and actually employed a salesman.
Where the hell do I start?
27 July 2003, 10:24 AM
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Hello,
I started an IT company and ended up selling that after a very short period (from starting to trade to selling 51% to a PLC within 6 months) so I had to learn all about this rapidly.
You have to work out:
- How stable the business is (is past good enough reference for future or is it really volatile?)
- What assets does it have?
- What liabilities? Is he tied into a long lease on any premises that you will then have to take over?
- What is the net profit and does it only make a profit because of him? Will his customers work with you?
For pricing you've then got to include something for assets but the main part is usually worked out on a multiple of net profit. So if you buy it at say 7 times net profit, you are expecting to recover costs in 7 years then it is all actual profit if you like after that.
On borrowing money I'd say you'd probably need a business angel (like a sponsor) or try a venture capital company. I don't think banks will help unless you are putting house etc on the line.
Legal fees will also be very high if you do everything to the letter to make sure you are protected. Expect 20k minimum if you use a decent firm.
Instead of just buying, what about:
1...Why not just start up and compete with him?
2...If you know him and trust him, do an Earnout arrangement. He lets you in to the business, you have minimum wages to get by on but your proper renumeration is paid in shares in the businesses based on how you improve it. He will benefit by taking out the increased profits. If you do a good job you could get the whole thing in say 4-5 years. He'll be happy because he'll have taken far more out and you'll have got the business for free...you've just invested time.
If you've got anymore questions email me because there is loads to consider.
Good luck
I started an IT company and ended up selling that after a very short period (from starting to trade to selling 51% to a PLC within 6 months) so I had to learn all about this rapidly.
You have to work out:
- How stable the business is (is past good enough reference for future or is it really volatile?)
- What assets does it have?
- What liabilities? Is he tied into a long lease on any premises that you will then have to take over?
- What is the net profit and does it only make a profit because of him? Will his customers work with you?
For pricing you've then got to include something for assets but the main part is usually worked out on a multiple of net profit. So if you buy it at say 7 times net profit, you are expecting to recover costs in 7 years then it is all actual profit if you like after that.
On borrowing money I'd say you'd probably need a business angel (like a sponsor) or try a venture capital company. I don't think banks will help unless you are putting house etc on the line.
Legal fees will also be very high if you do everything to the letter to make sure you are protected. Expect 20k minimum if you use a decent firm.
Instead of just buying, what about:
1...Why not just start up and compete with him?
2...If you know him and trust him, do an Earnout arrangement. He lets you in to the business, you have minimum wages to get by on but your proper renumeration is paid in shares in the businesses based on how you improve it. He will benefit by taking out the increased profits. If you do a good job you could get the whole thing in say 4-5 years. He'll be happy because he'll have taken far more out and you'll have got the business for free...you've just invested time.
If you've got anymore questions email me because there is loads to consider.
Good luck
27 July 2003, 11:43 AM
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On a similar theme - does anyone know anything about floating on the AIM? Basically we have got a good little company going, and some of the shareholders (of which there are only 4) would like to raise some money. The object of this would be twofold:
money to invest in the business (possibly purchase commercial premises rather than the rented one we are currently in)
put money into our pockets
the business has few assets but turns over about 6M a year
any advice on going to the market would be very interesting to me.
money to invest in the business (possibly purchase commercial premises rather than the rented one we are currently in)
put money into our pockets
the business has few assets but turns over about 6M a year
any advice on going to the market would be very interesting to me.
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